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1 Nitin Shah (DC Bar No. 156035) (pro hac vice application forthcoming) 2 [email protected] Jeffrey B. Dubner (DC Bar No. 1013399) 3 (pro hac vice application forthcoming) [email protected] 4 Sean A. Lev (DC Bar No. 449936) (pro hac vice application forthcoming) 5 [email protected] Democracy Forward Foundation 6 P.O. Box 34553 Washington, DC 20043 7 Telephone: (202) 448-9090 Facsimile: (202) 701-1775 8 Sarah A. Good (State Bar No. 148742) 9 [email protected] Anthony Schoenberg (State Bar No. 203714) 10 [email protected] Eric D. Monek Anderson (State Bar No. 320934) 11 [email protected] Farella Braun + Martel LLP 12 235 Montgomery Street, 17th Floor San Francisco, California 94104 13 Telephone: (415) 954-4400 Facsimile: (415) 954-4480 14 Attorneys for Plaintiffs 15 UNITED STATES DISTRICT COURT 16 NORTHERN DISTRICT OF CALIFORNIA 17 SAN FRANCISCO DIVISION 18 19 NATIONAL COMMUNITY REINVESTMENT Case No. 20 COALITION; CALIFORNIA REINVESTMENT COALITION, COMPLAINT FOR DECLARATORY 21 AND INJUNCTIVE RELIEF Plaintiffs, 22 Administrative Procedure Act Case vs. 23 OFFICE OF THE COMPTROLLER OF THE 24 CURRENCY and BRIAN BROOKS, in his official capacity as Acting Comptroller of the 25 Currency, 26 Defendants. 27 28

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1 TABLE OF CONTENTS 2 Page 3 I. INTRODUCTION ...... 1 4 II. JURISDICTION AND VENUE ...... 3 5 III. PARTIES ...... 3 6 IV. FACTUAL ALLEGATIONS ...... 4 7 A. The Community Reinvestment Act ...... 4 8 B. The Unified CRA Implementing Regulations ...... 8 9 C. Joseph Otting’s Longstanding Hostility to the CRA ...... 11

10 D. Otting’s Decision to Break from the Unified CRA Regulatory Framework ...... 13 11 E. OCC’s Refusal to Publish All Data, Analysis, and Input Underlying the Rule ...... 19 12 F. Otting’s Refusal to Change Course Despite COVID-19 or Even 13 Acknowledge the Changed Economic Landscape ...... 20 14 G. OCC’s Flawed Final Rule ...... 21 15 1. The Final Rule Allows Credit for Activities Whose Benefit to LMI Communities Is Speculative and Negligible ...... 23 16 2. The Final Rule Allows Banks to Obtain Credit Without Meeting the 17 Need for Services in LMI Communities Where They Do Business ...... 28 18 3. The Final Rule Abandons the Needs of Local Communities for a One-Size-Fits-All Formula ...... 32 19 4. The Final Rule Reduces Public Input and Transparency ...... 40 20 H. Harm to NCRC ...... 41 21 I. Harm to CRC ...... 46 22 V. CLAIM FOR DECLARATORY AND INJUNCTIVE RELIEF ...... 50 23 24 25 26 27 28

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1 Plaintiffs the National Community Reinvestment Coalition (“NCRC”) and California 2 Reinvestment Coalition (“CRC”), by and through undersigned counsel, hereby allege as follows:

3 I. INTRODUCTION 4 1. Plaintiffs bring suit under the Administrative Procedure Act, 5 U.S.C. § 702, to 5 challenge a Final Rule issued by the Office of the Comptroller of the Currency (“OCC”) revising 6 the regulations implementing the Community Reinvestment Act, 12 U.S.C. § 2901 et seq. 7 2. In 1977, Congress passed the Community Reinvestment Act (“Act” or “CRA”) to 8 address systemic discrimination in the provision of financial services to low- and moderate- 9 income (“LMI”) neighborhoods and communities of color—especially the practice of refusing to

10 provide financing in these neighborhoods, commonly known as “redlining.” Recognizing the 11 devastating effect on these neighborhoods of decades of redlining and other forms of 12 discrimination, Congress passed the Act to encourage banks to invest in underserved communities. 13 Since its enactment, the CRA has been a critical part of federal, state, local, and nongovernmental 14 efforts to improve the economic condition of LMI communities. 15 3. Plaintiffs, two nonprofit organizations, are focused on increasing the flow of 16 investment to LMI communities. Plaintiffs work, along with and on behalf of their members, to 17 ensure that banks fulfill their CRA obligations and to maximize the benefits that LMI 18 communities realize from these investments. Through negotiations with banks, Plaintiffs have 19 helped secure over $150 billion in CRA funds for these communities since 2016 alone. 20 4. Until now, the three federal financial regulatory agencies charged with 21 implementing the Act—OCC, the Board of Governors of the Federal Reserve System, and the 22 Federal Deposit Insurance Corporation—have jointly issued uniform regulations ensuring that the 23 Act is implemented robustly and that banks’ incentives are properly aligned, consistent with the 24 Act’s text and purpose, to serve the needs of the LMI communities where they operate. 25 5. In June 2020, OCC, acting alone and without the support of the other federal 26 regulatory agencies that implement the CRA, issued a Final Rule that guts the Act and eviscerates 27 the backing it provides to the LMI communities and communities of color that have long suffered 28 from discrimination by financial institutions. Led by a Comptroller of the Currency who has a

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1 long history of antipathy to the Act and community development organizations, the Final Rule will 2 siphon significant amounts of lending, investments, and bank services away from LMI 3 communities. It will allow banks to receive credit for activities that do little or nothing to help 4 those communities and that may in fact harm and displace the residents of these communities. By 5 broadening the regulation’s geographic criteria and applying a one-size-fits-all formula, the Final 6 Rule ignores local needs and allows banks to disregard a large number of communities in favor of 7 ones where it may be more financially advantageous to concentrate their investments. And in 8 implementing a ratio-based approach and removing the right of the public to comment on bank 9 performance, the Final Rule will result in banks passing over smaller, more beneficial projects,

10 and will diminish or eliminate opportunities for community engagement and input—long the 11 linchpin of successful community reinvestment efforts. 12 6. The Final Rule is inconsistent with OCC’s duties under the CRA. Specifically, the 13 Final Rule fails to adhere to OCC’s affirmative obligation to ensure that the banks it regulates 14 meet the needs of the communities, including LMI communities, where they do business. See 12 15 U.S.C. § 2901(a)(3), (b). The Final Rule also violates the statute by allowing banks to ignore local 16 needs, instead assessing banks’ compliance on a sweepingly broad scale and permitting banks to 17 obtain CRA compliance credit for financing mega-projects that do little to serve LMI 18 communities. See 12 U.S.C. § 2901(a)(3), (b). 19 7. Separate and apart from those statutory violations, the Final Rule also represents a 20 failure by OCC to engage in the “reasoned decisionmaking” required by the Administrative 21 Procedure Act (“APA”).1 In rushing its Final Rule through the administrative process, OCC 22 provided little or no data or analysis to support its new approach—to a degree that even many 23 banks criticized the measure because of the uncertain effects it will have on their operations. 24 Further, OCC ignored or brushed aside comments—including by Plaintiffs and countless others— 25 about the harmful effects the Final Rule would have on LMI neighborhoods and communities of 26 color. The Final Rule also ignores concerns expressed by other federal regulators and many 27 1 28 See Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 52 (1983).

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1 commenters, including Plaintiffs, about the deleterious effects of OCC breaking from the unified 2 regulatory framework. These effects include increasing the burden on organizations like Plaintiffs, 3 which focus on ensuring that banks meet their obligations under the Act in a way that maximizes 4 community benefits, to have to address different and potentially conflicting regulatory regimes 5 depending on which bank they are dealing with. Moreover, in the midst of an unprecedented 6 global pandemic that completely upended assumptions about the U.S. economy and in particular 7 devastated LMI communities and communities of color, OCC rejected or ignored all calls by 8 Congress, industry associations, and community groups, including Plaintiffs, to suspend the 9 rulemaking process and reevaluate its proposal to ensure that it comports with changed needs and

10 opportunities arising from the COVID-19 crisis. 11 8. Accordingly, and for the reasons set forth herein, Plaintiffs respectfully request that 12 the Court set aside the Final Rule as arbitrary and capricious, contrary to law, and issued without 13 adherence to required process.

14 II. JURISDICTION AND VENUE 15 9. This Court has jurisdiction over this action pursuant to 5 U.S.C. § 702 and 28 16 U.S.C. § 1331. 17 10. Venue is proper under 28 U.S.C. § 1391(e) because Plaintiff CRC has its principal 18 place of business in San Francisco, California, which is within the Northern District of California.

19 III. PARTIES 20 11. Plaintiff National Community Reinvestment Coalition, founded in 1990, is a 21 nonprofit organization operating under Section 501(c)(3) of the Internal Revenue Code. NCRC is 22 based in Washington, D.C. NCRC’s mission is to help increase the flow of capital into 23 underserved communities; the CRA is an essential tool for it to meet that mission. Its membership 24 comprises more than 600 community reinvestment organizations; community development 25 corporations; local and state government agencies; faith-based institutions; community organizing 26 and civil rights groups; minority- and women-owned business associations; and local and social 27 service providers from across the nation. In particular, NCRC seeks to accomplish its mission by 28 publishing evidence-based reports to educate its members, which inform NCRC’s own

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1 negotiations with lenders and educate the public and lenders about local needs; negotiating 2 agreements with lenders to increase lending to and investments in LMI communities; and 3 participating in public processes to comment on banks’ CRA performance. 4 12. Plaintiff California Reinvestment Coalition, founded in 1986, is a nonprofit 5 organization operating under Section 501(c)(3) of the Internal Revenue Code. CRC is based in San 6 Francisco, California. CRC was founded to aid low-income communities and communities of 7 color throughout California in accessing affordable housing financing, community development 8 funds, small business loans, mortgage loans, and bank services. Its membership comprises more 9 than 300 nonprofit community-based organizations and public agencies that work directly with

10 LMI communities and communities of color to ensure access to CRA-qualified funds. CRC is 11 itself a member of NCRC. CRC works to build an inclusive and fair economy that meets the needs 12 of communities of color and low-income communities by ensuring that banks and other 13 corporations invest and conduct business in such communities in a just and equitable manner. Of 14 particular relevance here, CRC seeks to accomplish its mission by publishing evidence-based 15 reports to educate its members, policymakers, and the public about areas of need and ways to 16 promote CRA investment, negotiating agreements with lenders to increase CRA commitments in 17 LMI communities, and participating in public processes to comment on bank CRA performance. 18 13. Defendant Brian Brooks is Acting Comptroller of the Currency. 19 14. Defendant Office of the Comptroller of the Currency (“OCC”) is a subagency of 20 the United States Department of the Treasury and is headquartered in Washington, D.C.

21 IV. FACTUAL ALLEGATIONS 22 A. The Community Reinvestment Act 23 15. In 1933, the federal government established the Home Owners’ Loan Corporation 24 (“HOLC”). HOLC examiners classified neighborhoods on the basis of perceived financial risk 25 from the highest to the lowest, A-D. A, the “best” area, was colored green; B, the “still desirable” 26 area, blue; C, the “definitely declining” area yellow and D, the “hazardous” area, red.2 For 27 28 2 For example, on the HOLC map of San Francisco the notes for the “green” A2 area (which

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1 example, below is the HOLC map of San Francisco from 1937. 2 3 4 5 6 7 8 9

10 11 12 13 14 15 16 A 1937 San Francisco “residential security map” created by the Home Owners’ Loan Corporation 17 (Courtesy of University of Maryland's T-Races project) 18 19 16. Banks did not lend in the neighborhoods HOLC classified as “hazardous” and 20 colored red, which consisted of LMI communities comprised predominantly of people of color 21 and recent immigrants from southern and eastern Europe. This systemic racist and discriminatory 22 practice is now commonly called “redlining.” 23 corresponds to Presidio Terrace) state: “This is an exclusive and secluded area, and there is no possibility of invasion by undesirable social elements.” The notes for “blue” B1 (which 24 corresponds to the central and outer Richmond) state: “There is no threat of undesirable racial influences.” The notes for “yellow” C4 (which roughly corresponds to Laurel Heights) state: 25 “There are no racial concentrations in the area but there is a distinct threat of infiltration of Negroes and Japs from areas D-1 and D-3. However, this possibility will be minimized when the 26 proposed removal of Laurel Hill Cemetery takes place.” The notes for the eastern adjoining “red” area D1 state: “There is a decided concentration of undesirable racial elements. More than half the 27 Negro population of San Francisco are located here, and it is considered a highly hazardous area.” https://dsl.richmond.edu/panorama/redlining/#loc=14/37.763/-122.503&city=san-francisco- 28 ca

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1 17. The net effect of redlining compounded over several decades in the United States. 2 Redlining limited the flow of capital for homeownership in LMI communities of color. It also 3 prevented small businesses in those communities from accessing capital to grow and develop. 4 These results were exacerbated by widespread racial discrimination and segregation in housing. In 5 short, financial institutions—aided by the federal government—systematically denied economic 6 development and its concomitant housing and economic opportunities to LMI neighborhoods that 7 disproportionately were composed of people of color. 8 18. Against this backdrop, the primary purpose of the CRA was to eradicate the 9 practice of redlining and to ensure that banks invest in LMI communities, especially

10 neighborhoods of color, that had for decades suffered from discrimination. During the Senate 11 hearings on the CRA, Senator William Proxmire of Wisconsin stated: 12 By redlining let me make it clear what I am talking about. I am talking about the fact that banks and savings and loans will take 13 their deposits from a community and instead of reinvesting them in that community, they will actually or figuratively draw a red line on 14 a map around the areas of their city, sometimes in the inner city, sometimes in the older neighborhoods, sometimes ethnic and 15 sometimes black, but often encompassing a great area of their neighborhood.3 16 17 19. Accordingly, the CRA, enacted in 1977, combats systemic racism and 18 discrimination against LMI neighborhoods by ensuring access to fairly priced credit and capital. 19 Such access is essential to economic inclusion and wealth-building in the United States. It enables 20 individuals and families to become homeowners and acquire loans for other needs. It also is 21 critical in the growth and development of small businesses. Access to fairly priced credit and 22 capital results in more productive local and national economies. Prior to the passage of the CRA, 23 LMI individuals, who disproportionately are people of color, experienced intense discrimination in 24 accessing fairly priced credit. 25 26 27 3 Community Credit Needs: Hearings on S. 406 Before the S. Comm. on Banking, Housing, and th 28 Urban Affairs, 95 Cong. 9, 123 Cong. Rec. 17630 (1977).

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1 20. The CRA provides that “regulated financial institutions are required by law to 2 demonstrate that their deposit facilities serve the convenience and needs of the communities in 3 which they are chartered to do business,” and imposes upon banks a “continuing and affirmative 4 obligation to help meet the credit needs of the local communities in which they are chartered.” 12 5 U.S.C. § 2901(a). The Act further “require[s]” each Federal financial regulatory agency—OCC, 6 the Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve 7 System—“to use its authority when examining financial institutions, to encourage such institutions 8 to help meet the credit needs of the local communities in which they are chartered.” Id. § 2901(b). 9 The regulatory agencies are required to issue implementing regulations. Id. § 2905.

10 21. The CRA also imposes an affirmative obligation on banks to serve all communities 11 where they do business, including LMI communities. See 12 U.S.C. § 2903(a)(1). Examiners from 12 federal bank agencies must scrutinize lending, investment, and services to LMI neighborhoods and 13 rate banks on those measures in a written evaluation. Id.; id. § 2906. Low or failing grades can 14 result in delays or denials of bank merger applications. Id. § 2903(a)(2). 15 22. The CRA also contains robust public input and accountability mechanisms. Each 16 financial regulatory agency, including OCC, is required to report to Congress annually on the 17 “actions it has taken to carry out its responsibilities” under the Act. 12 U.S.C. § 2904. The 18 financial regulatory agencies must issue public reports assessing whether banks are meeting their 19 assessment criteria and discuss the facts and data supporting such conclusions, among other 20 requirements, and issue a rating of “outstanding,” “satisfactory,” “needs or improve,” or 21 “substantial noncompliance” with respect to meeting community credit needs. Id. § 2906(b). 22 23. Since the passage of the CRA, banks work harder in LMI communities because 23 they are being graded and publicly watched. A 2017 study by the Federal Reserve Bank of 24 Philadelphia found that, when CRA exams no longer cover a metropolitan area or county, home 25 lending in LMI census tracts can decline up to 20 percent. Since 1996, NCRC has found that 26 banks have made almost $2 trillion in small business loans and community development loans in 27 LMI neighborhoods. The CRA has been a key instrument in efforts to improve economic 28 development and opportunities in LMI communities.

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1 24. Now, OCC’s Final Rule threatens to undermine the core purpose of the CRA and 2 roll back the clock by discouraging banks from making precisely the kinds of investments and 3 extensions of credit that most benefit LMI neighborhoods.

4 B. The Unified CRA Implementing Regulations 5 25. The three major U.S. banking regulators—OCC, the Federal Deposit Insurance 6 Corporation (“FDIC”), and the Board of Governors of the Federal Reserve System (“Federal 7 Reserve” or “Fed”)—share responsibility for implementing the CRA. See 12 U.S.C. § 2902(1). 8 26. Until the present rulemaking, these agencies have worked in unison, together with 9 stakeholders from the financial industry, nonprofit community organizations, and state and local

10 governments, to establish a single framework for evaluating bank compliance with the CRA. The 11 resulting framework—to which FDIC and the Federal Reserve continue to adhere—balances the 12 interests in consistency and certainty with ensuring that banks’ activities actually help to meet the 13 needs of LMI communities, including through opportunities for public input and engagement by 14 members of those communities. See Joint Final Rule, Community Reinvestment Act Regulations, 15 60 Fed. Reg. 22,156 (May 4, 1995). 16 27. The unified framework resulted from an extensive multi-year joint rulemaking in 17 the 1990s “to emphasize performance rather than process, to promote consistency in evaluations, 18 and to eliminate unnecessary burden.” Id. at 22,158. To accomplish these goals, the agencies held 19 a series of seven public hearings across the country where they heard from over 250 live witnesses 20 and received dozens of written statements. Id. This process generated two proposed rules that 21 refined the regulatory framework. Id. Together, the two Notices of Proposed Rulemaking 22 generated over 13,000 public comments that informed the final rule, “the vast majority of [which] 23 expressed support for the agencies’ goal[s].” Id. at 22,157 (1993 rulemaking), 22,158 (1994 24 rulemaking). 25 28. This joint effort “[e]stablish[ed] the framework and criteria by which the [agencies] 26 assess[] a bank’s record of helping to meet the credit needs of its entire community, including low- 27 and moderate-income neighborhoods, consistent with the safe and sound operation of the bank.” 28

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1 12 C.F.R. § 25.11(b)(1).4 2 29. The CRA framework guides bank evaluations based on overlapping and 3 intertwined performance standards, criteria, and context. The framework establishes different sets 4 of performance standards depending on the size (large, intermediate small, or small) or type 5 (wholesale or limited purpose) of a bank. Each performance standard is composed of performance 6 criteria and tests to evaluate bank performance, and considers performance context, the bank’s 7 circumstances, its customers, and the economy to further account for the differences in bank 8 operations, structure, and the needs of the communities in which the bank operates. See OCC, 9 Comptroller’s Handbook, Community Reinvestment Act Examination Procedures 1 (May 1999)

10 (“Neither the CRA nor its implementing regulations inject hard and fast rules or ratios into the 11 examination or application processes. Rather, the law contemplates an evaluation of each lender’s 12 record that can accommodate individual circumstances.”). 13 30. Because banks are evaluated based on their record of helping to meet the needs of 14 their local communities, assessment areas are used as a basis for bank evaluation. An assessment 15 area is generally the local community around a bank office, branch, and/or “deposit-taking 16 ATMs”. See 12 C.F.R. § 25.41. The agencies evaluate each bank’s performance within its 17 assessment areas to ensure its compliance with the CRA. For banks with multiple assessment 18 areas, assessment areas are evaluated individually and then considered together to assign a bank- 19 level rating. 20 31. The agencies jointly established performance standards to evaluate bank activity 21 based on bank size and business strategy. The large bank performance standard contains three 22 performance criteria, testing a bank’s lending, investment, and service. First, the lending test, the 23 most heavily weighted of the three for large banks, evaluates the bank’s record of helping to meet 24 25 4 The uniform regulations are codified for each agency in separate but substantively identical sections of the Code of Federal Regulations. For ease of reference, only OCC regulations for 26 banks are cited in the main text. OCC’s regulations for savings associations can be found at part 195 of Title 12, the FDIC’s regulations at part 345, and the Fed’s regulations at part 228. Each 27 section follows the same subpart numbering; for example, the provision cited in the text above, 12 28 C.F.R. § 25.11(b)(1), is mirrored at sections 195.11(b)(1), 345.11(b)(1), and 228.11(b)(1).

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1 credit needs by considering the volume of the bank’s mortgage, small business, small farm, 2 community development, and sometimes consumer lending activities as well as the geographic 3 distribution and income of borrowers. See id. § 5.22. Second, the investment test evaluates the 4 bank’s community development activities by dollar amount, innovation, complexity, and 5 responsiveness to community needs. Id. § 25.23. Finally, the service test evaluates the bank’s 6 record of offering retail banking services such as the presence of bank branches in assessment 7 areas. Id. § 25.24. 8 32. Intermediate small, small, wholesale, and limited purpose banks have been 9 evaluated under different standards with varied criteria due to their size or limited lines of

10 business. Wholesale or limited purpose banks that do not engage in retail lending may opt for an 11 evaluation that measures community development activities. Id. § 25.25. Small banks are 12 evaluated based on a lending test, while intermediate small banks are subject to a lending test as 13 well as a community development test. See id. § 25.26. 14 33. The agencies tailor their evaluations to the individual circumstances of the bank by 15 considering the bank’s performance context. Performance context accounts for the circumstances 16 in which the bank operates, such as information about the bank, its community, and other banks. 17 See id. § 25.21(b). Performance context includes the demographic and economic profile of the 18 community; the business climate; the availability of opportunities to lend, invest, and serve the 19 community; the bank’s business model, size, and structure; the history of the bank’s performance; 20 the bank’s public file; and community comments about the bank’s CRA performance. Id. 21 34. CRA examiners evaluate all this material to produce a CRA rating. Banks may be 22 rated “outstanding,” “satisfactory,” “needs to improve,” or in “substantial noncompliance.” 12 23 U.S.C. § 2906(b)(2); 12 C.F.R. § 25.28. To determine an overall CRA rating, agencies first 24 evaluate each applicable performance criterion. For example, to achieve an “outstanding” 25 component rating for the lending test, a large bank must demonstrate “excellent” responsiveness to 26 credit needs, make a “substantial majority” of its loans in its assessment area(s), demonstrate an 27 “excellent” geographic and income distribution of loans in its assessment area(s), have an 28 “excellent” record of serving the needs of highly economically disadvantaged areas, exhibit

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1 “[e]xtensive” use of innovative or flexible lending practices, and be a “leader” in community 2 development lending. 12 C.F.R. Pt. 25, App. A(b)(1)(i). The other performance criteria are scored 3 similarly with standards for each rating level. The agency then combines the component ratings to 4 determine the bank’s overall CRA rating, and reports both the overall rating and the component 5 scores. 6 35. The primary effect of a CRA rating is that a lower rating can limit a bank’s ability 7 to grow. The regulatory agencies consider a CRA rating when a bank seeks certain regulatory 8 approvals, for example to establish a new domestic branch, merge with or acquire another bank, or 9 obtain a national bank charter or deposit insurance. See 12 C.F.R. § 25.29(a). Local governments

10 and the public also consider CRA ratings in determining which banks to patronize, as reflected in 11 certain local Responsible Banking Ordinances, which may condition bank receipt of local deposits 12 on an Outstanding or Satisfactory CRA Rating. 13 36. This unified framework provides a well-established test under which “upwards of 14 90 percent of banks” regularly obtain a “Satisfactory” rating and about 9 percent obtain an 15 “Outstanding” rating.5 16 37. Relative to other banking regulations, the burden of the existing CRA process is 17 comparatively light. As a recent study by the Federal Reserve Bank of St. Louis found, CRA 18 compliance is only the sixth most costly regulation for banks, at just 7.2 percent of all compliance 19 expenses.6

20 C. Joseph Otting’s Longstanding Hostility to the CRA 21 38. After being nominated by President Trump and confirmed by the United States 22 Senate, Joseph Otting took office as Comptroller of the Currency on November 27, 2017. 23

24 5 Josh Silver and Jason Richardson, NCRC, “Do CRA Ratings Reflect Differences in Performance: An Examination Using Federal Reserve Data” (May 27, 2020), https://ncrc.org/do- 25 cra-ratings-reflect-differences-in-performance-an-examination-using-federal-reserve-data/. 26 6 Federal Reserve Bank of St. Louis, “Compliance Costs, Economies of Scale and Compliance Performance,” 5 (April 2018), 27 https://www.communitybanking.org/~/media/files/compliance%20costs%20economies%20of%20 28 scale%20and%20compliance%20performance.pdf.

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1 39. Otting brought to his role an antipathy toward the CRA and its objective of 2 addressing discrimination by holding banks accountable for their record of investing in underserved 3 communities. By his own admission, his impetus for revising the CRA regulations arises from his 4 prior experience as Chief Executive Officer of OneWest Bank, a Pasadena-based bank that was 5 owned by a group of private equity investors led by now-Treasury Secretary Steven Mnuchin. 6 40. At OneWest Bank, instead of investing in LMI communities as the CRA requires, 7 Otting oversaw more than 10,000 foreclosures concentrated in minority communities. Analysis by 8 CRC found that fully 68 percent of OneWest’s foreclosures in California were in neighborhoods 9 of color.7 A subsequent investigation by the California Attorney General’s Office “uncovered

10 evidence suggestive of widespread misconduct” by OneWest Bank in carrying out these 11 foreclosures, including executing backdated and false instruments and performing acts without 12 valid legal authority. See Ex. F (Executive Summary at 2). 13 41. Analysis by CRC found that OneWest had only one of its 74 branches in a majority 14 Asian-American census tract, and none in majority Black census tracts. The analysis also found 15 that over a two-year period, OneWest originated only two mortgage loans to Blacks in the greater 16 Los Angeles area, where it is based.8 17 42. As discussed further below, OCC’s Final Rule eliminates opportunities for public 18 input into CRA compliance. This has been a particular focus for Otting, arising from the resistance 19 he encountered from community groups, including CRC, when he sought to obtain approval of a 20 merger of OneWest Bank with CIT Bank. Community groups, led by CRC, were concerned that 21 OneWest Bank and CIT Bank had not adequately committed to reinvesting in underserved 22 communities and fulfilling their CRA obligations. 23

24 7 CRC, “Coalition Calls for Federal Investigation into Impacts on Communities of Color of OneWest Bank Foreclosures,” http://calreinvest.org/press-release/coalition-calls-for-federal- 25 investigation-into-impacts-on-communities-of-color-of-onewest-bank-foreclosures/. 26 8 Testimony of Paulina Gonzalez-Brito, Executive Director, CRC, Before the House Financial Services Committee, Subcommittee on Consumer Protection and Financial Institutions at 10 (Jan. 27 14, 2020), available at: http://calreinvest.org/wp-content/uploads/2020/01/PGB-Congressional- 28 Testimony-1.14.20-with-Appendix.pdf.

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1 43. By his own admission, the process of having to deal with community groups’ 2 concerns about OneWest’s failure to invest in communities that have historically been subjected to 3 discriminatory banking practices was “a very difficult period” for Otting that gave him “very 4 strong viewpoints” about reshaping the way the CRA is implemented.9 Otting also expressed his 5 frustration that “community groups” can “use your lack of compliance”10 with the CRA to object 6 to mergers or other activities, and said that “[w]e won’t tolerate groups . . . disrupt[ing] the process 7 and affect[ing] our decisions.”11 8 44. Otting has also appeared to question the purpose of the CRA—to combat pervasive 9 discrimination in the banking industry and stubborn (indeed, growing) income inequality in

10 American communities. Otting stated in sworn congressional testimony that he “ha[s] never 11 personally observed” discrimination, and that he does not read any newspapers or watch 12 television. Otting further claimed that economic inequality is not expanding in America today, a 13 statement that is at odds with virtually all current measurements of the wealth gap, including data 14 from the Federal Reserve.12 He did concede that his “friends from the inner city across America 15 will tell me that [discrimination] is evident today.”13

16 D. Otting’s Decision to Break from the Unified CRA Regulatory Framework 17 45. Otting’s position as Comptroller provided him with the opportunity to eviscerate 18 the rule that had been a thorn in his side in the private sector, and to sideline the community 19 9 See “Bankers vs. Activists: Battle Lines Form Over Low-Income Lending Rules,” Wall Street 20 Journal (Sept. 25, 2018), available at: https://www.wsj.com/articles/mnuchins-fight-with-activists- inspired-community-reinvestment-act-revamp-1537885753. 21 10 Rachel Witkowski, “5 items on the OCC chief’s reg relief to-do list,” American Banker, April 9, 22 2019. 11 23 “Q&A with Comptroller Joseph Otting,” available at: https://www.cbaofga.com/uploads/1/2/3/8/123887871/qa_comptroller_otting.pdf. 24 12 See Ana Kent, Lowell Ricketts, & Ray Boshara, Federal Reserve Bank of St. Louis, “What Wealth Inequality in America Looks Like: Key Facts & Figures (Aug. 14, 2019) (analyzing 25 Federal Reserve data, among other sources), available at: https://www.stlouisfed.org/open- 26 vault/2019/august/wealth-inequality-in-america-facts-figures. 13 Testimony of Joseph Otting, Comptroller of the Currency, Before the House Committee on 27 Financial Services (June 13, 2018), https://www.govinfo.gov/content/pkg/CHRG- 28 115hhrg31475/html/CHRG-115hhrg31475.htm.

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1 groups whose advocacy he resented. By revising the framework for CRA evaluation, Otting could 2 allow banks to claim CRA credit for activities that had little if anything to do with the purposes of 3 the CRA, while simultaneously eliminating the vital role that community groups, such as Plaintiffs 4 and their members, play in ensuring that banks meet the needs of LMI communities. 5 46. Based on his “very strong viewpoints” about revising the CRA regulations, Otting 6 issued an Advance Notice of Proposed Rulemaking on the CRA regulations in September 2018. 7 See 83 Fed. Reg. 45,053 (Sept. 5, 2018) (“ANPR”) (Ex. D). The ANPR outlined an approach that, 8 under the auspices of “modernization,” would dismantle the unified regulatory framework and 9 replace it—at least for OCC—with a new rule that would, among other things, (1) dramatically

10 expand the types of activities that would qualify for CRA credit, including ones that are far 11 attenuated from supporting LMI communities; (2) apply a single overall metric to a bank’s CRA 12 activities, meaning it could completely ignore a large number of its communities and still receive a 13 “passing” grade; and (3) diminish or eliminate the role of community engagement in CRA 14 evaluation. 15 47. OCC received 1,587 comments in response to the ANPR from an array of 16 stakeholders, many of which cautioned OCC that without adequate supporting data and analysis, 17 any regulatory revision risked decreasing investment in LMI communities and creating additional 18 regulatory uncertainty. 19 48. In its comment on the ANPR, NCRC warned OCC that the agency was suggesting 20 an approach that would eliminate the CRA’s focus on local community needs; dilute CRA’s 21 benefits for LMI communities; promote “grade inflation” for financial institutions seeking CRA 22 credit for activities that did not really benefit these communities; and diminish transparency and 23 public input into the process.14 24 49. Similarly, CRC noted that a single-metric approach would lead banks to “seek the 25 easiest, largest deals and simply stop when the goal is reached,” so they could focus their efforts 26 27 14 Comment of NCRC (Nov. 23, 2018), available at: 28 https://www.regulations.gov/document?D=OCC-2018-0008-1132.

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1 on some communities and ignore others altogether. CRC further expressed concern that OCC’s 2 approach would reduce or eliminate the opportunities for community input that are key to ensuring 3 that banks are truly meeting community needs with their CRA-qualifying activities.15 4 50. Rather than carefully considering Plaintiffs’ concerns, OCC instead sought to 5 silence their dissent. In January 2019, OCC Deputy Comptroller Barry Wides sent CRC a letter 6 calling CRC’s concerns “false and negatively prejudging” and demanding that it “refrain from 7 mischaracterizing the OCC’s CRA ANPR in any future CRC releases and other public 8 communications.”16 In October 2019, OCC’s Wides sent yet another letter seeking to silence 9 CRC, calling its statement that OCC sought to water down the CRA, a sentiment shared by many

10 commenters, “misleading and unsupported.”17 OCC again provided no facts, data, or analysis to 11 support this assertion. Wides also wrote an op-ed chastising community groups for, in OCC’s 12 view, not contributing positively to the discussion about CRA reform.18 13 51. Meanwhile, OCC forged ahead with the rulemaking. In January 2020, together with 14 FDIC, it issued a Notice of Proposed Rulemaking. 85 Fed. Reg. 1,204 (Jan. 9, 2020) (“Proposed 15 Rule”) (Ex. E). 16 52. Other federal banking regulators were quick to distance themselves from Otting’s 17 Proposed Rule. The Federal Reserve declined to join the Proposed Rule, noting substantive 18 concerns with Otting’s proposal, a lack of data and analytical support, and uniformity concerns 19 that would result if OCC pressed forward alone. 20 21 22 15 Comment of CRC (Nov. 21, 2018), available at: https://www.regulations.gov/document?D=OCC-2018-0008-1051. 23 16 See Letter from Barry Wides, Deputy Comptroller, for Paulina Gonzalez-Brito, Executive 24 Director, CRC (Jan. 9, 2019), available at: http://calreinvest.org/wp- content/uploads/2019/03/Wides-Letter-to-CRC.pdf. 25 17 See Letter from Barry Wides, Deputy Comptroller, for Paulina Gonzalez-Brito, Executive 26 Director, CRC (Oct. 2, 2019), available at: https://twitter.com/CalReinvest/status/1179491967308185600/photo/1. 27 18 Barry Wides, “Setting the Record Straight on CRA Reform,” American Banker (Mar. 25, 2019), 28 https://www.americanbanker.com/opinion/setting-the-record-straight-on-cra-reform.

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1 53. Jerome Powell, Chair of the Federal Reserve Board of Governors, stated that the 2 Federal Reserve had “worked very hard to try to get aligned with OCC, really,” but had been 3 unable to do so. He also noted that he was concerned that having different regimes for CRA 4 implementation—as would happen if OCC proceeded without the Federal Reserve—could “create 5 confusion or, you know, sort of tension between the regimes.”19 6 54. Lael Brainard, the member of the Federal Reserve Board of Governors who leads 7 its CRA efforts, criticized OCC’s proposal while outlining an alternative approach to CRA 8 regulatory revision. She stated that OCC’s “uniform ratio” approach “could provide too little 9 incentive to make good loans during an expansion and incentives to make unsound loans during a

10 downturn, which could be inconsistent with the safe and sound practices mandated by the CRA 11 statute.” Brainard also noted that the discretionary adjustments to the ratio that OCC put under the 12 umbrella of performance context (discussed infra) would “undermine the certainty a metric 13 purports to provide.” Brainard stated that data the Federal Reserve compiled showed that a 14 “tailored approach using targeted metrics” would “yield[] more consistent and predictable overall 15 ratings than any comprehensive uniform metric,” such as that which OCC proposed. She also 16 explained that the Federal Reserve’s analysis “did not find a consistent relationship between CRA 17 ratings and a uniform comprehensive ratio.”20 18 55. Brainard further said that the Federal Reserve had “devoted substantial time and 19 effort to engaging with the other banking agencies,” and that the Federal Reserve had shared its 20 analysis, data, and proposals “in greater detail with our counterparts at the other banking agencies 21 in an effort to forge a common approach.” Nevertheless, OCC had been unwilling to consider the 22 Federal Reserve’s proposal. Brainard said that “[w]e continue to believe that a strong common set 23 of interagency standards is the best outcome.” And while expressing hope that the regulators could 24 come together, in commenting on the OCC proposal, she cautioned, “I think we want to make sure 25 19 Transcript of Chair Powell’s Press Conference (Dec. 11, 2019), 26 https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20191211.pdf. 20 Governor Lael Brainard, Federal Reserve, “Strengthening the Community Reinvestment Act by 27 Staying True to Its Core Purpose” (Jan. 8, 2020), 28 https://www.federalreserve.gov/newsevents/speech/brainard20200108a.htm.

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1 that any rulemaking we do, we feel really confident about that rulemaking furthering the core 2 purposes of the statute.” 21 3 56. Martin Gruenberg, a member of the FDIC’s Board of Directors, echoed these 4 concerns. He called the Proposed Rule “a deeply misconceived proposal that would fundamentally 5 undermine and weaken the Community Reinvestment Act.” He said that OCC’s single-metric 6 proposal amounted to a “‘count the widgets’ approach that does not take into account the quality 7 and character of the bank’s activities and its responsiveness to local needs.” Gruenberg further 8 noted that OCC had itself acknowledged a lack of data and analysis to support its new approach; 9 that it would allow banks to entirely ignore many of its assessment areas and still receive a

10 “passing” grade; that it would dilute the CRA’s focus on LMI communities; and that it would 11 undermine bank engagement and dialogue with local community stakeholders.22 12 57. Otting’s proposal was also met with near-universal criticism from across the 13 spectrum of CRA stakeholders. OCC received several thousand comments, the vast majority of 14 which did not support the proposed framework. Indeed, NCRC analysis showed that roughly 1 15 percent of all commenters agreed with the Proposed Rule in its entirety. Commenters expressed 16 concern that the new evaluation measures were not supported by data and analysis; that the 17 Proposed Rule would dilute contributions to LMI communities that are at the core of the CRA; 18 and that going forward without all three banking regulators on board would create confusion and 19 disarray. 20 58. Community groups, including Plaintiffs, criticized the Proposed Rule for, among 21 other things, (i) dramatically expanding the definitions of qualifying activities, thereby diluting the 22 intended focus on services to LMI communities; (ii) diminishing the value the CRA places on 23 bank branches and accessible bank accounts and services in LMI communities; (iii) proposing a 24 single evaluation measure unsupported by data that would discourage vital small-dollar retail 25 21 26 Id. 22 Statement by Martin J. Gruenberg, Member, FDIC Board of Directors, “Notice of Proposed 27 Rulemaking: Community Reinvestment Act Regulations” (Dec. 12, 2019), 28 https://www.fdic.gov/news/news/speeches/spdec1219d.pdf.

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1 lending and allow banks to ignore a large number of communities altogether; and (iv) reducing 2 transparency and opportunities for community input.23 Plaintiffs also identified several respects in 3 which the Proposed Rule would violate the CRA by failing to achieve the statutory purpose of 4 supporting LMI communities. 5 59. Plaintiffs were far from alone in their criticism. The vast majority of commenters, 6 including a coalition of 22 states led by California, expressed deep concerns about the entire 7 framework of the proposal. The states’ comment, for example, noted that the proposed 8 benchmarks were “apparently arbitrary”; that the evaluation method would permit banks to ignore 9 the needs of a great number of their communities; that the Proposed Rule eliminated the CRA’s

10 focus on service to LMI communities; and that OCC had provided virtually no data to support its 11 proposal.24 12 60. Even banks opposed the Proposed Rule. The American Bankers Association said 13 that it had “serious concerns” about OCC’s proposed evaluation metrics; that further data and 14 analysis were required; and that a failure of the regulatory agencies “to act in coordination would 15 yield undesirable results that would be contrary to the objectives of the modernization effort and 16 would undermine the longevity of any final rule.”25 17 61. Despite the overwhelming opposition voiced in the public comments and from the 18 other agencies that implement the CRA, OCC released the Final Rule on May 20, 2020, just six 19 weeks after the close of the comment period. This six-week period—in the midst of a global 20 pandemic, no less—represents a strikingly short amount of time given the complexity of the issue 21 and the many thousands of comments received, nearly all of them critical of the proposed 22 23 23 See generally Comment of NCRC (April 8, 2020) (“NCRC Comment”), https://ncrc.org/wp- content/uploads/2020/04/NCRC-comment-v4b.pdf (Ex. B); Comment of CRC (April 8, 2020) 24 (“CRC Comment”), https://beta.regulations.gov/document/OCC-2018-0008-3181 (Ex. C). 24 See generally Comment of State of California and 21 Other States (Apr. 8, 2020), 25 https://oag.ca.gov/system/files/attachments/press- 26 docs/Final%20CRA%20regs%20comment%20letter%20-%2004.08.2020.pdf. 25 See generally Comment of American Bankers Ass’n (Apr. 8, 2020), https://www.aba.com/- 27 /media/documents/comment-letter/joint-letter-cra- 28 04082020.pdf?rev=47ec78e4a44f4669b042e70510142fe2.

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1 framework, that OCC was legally required to meaningfully consider and address. 2 62. OCC’s Final Rule had no support from its fellow bank regulators. Even FDIC, 3 which had jointly issued the Proposed Rule with OCC, ultimately thought better of moving 4 forward. FDIC Chair Jelena McWilliams released a statement saying that, especially in light of 5 COVID-19, it was not prepared to finalize the rule.26 6 63. Virtually every interested party, from Federal Reserve Chair Powell to banks to 7 community groups like Plaintiffs, has expressed serious concern with the confusion, tension, and 8 disarray that would result from the creation of a completely different CRA evaluation system for 9 OCC-regulated entities versus the unified framework, to which FDIC and the Federal Reserve

10 continue to adhere. Yet OCC’s Final Rule contains no indication that OCC even considered, let 11 alone evaluated and accounted for, this serious problem. 12 64. Once OCC released the Final Rule, Otting had achieved his primary goal as 13 Comptroller, and he announced his resignation immediately thereafter—the day after the Final 14 Rule was publicly released.

15 E. OCC’s Refusal to Publish All Data, Analysis, and Input Underlying the Rule 16 65. Although the Proposed Rule stated it was based upon consideration of OCC’s 17 research and analysis, OCC refused to publish the research, data, and analysis it claimed supported 18 its issuance of the rule. 19 66. OCC also failed to publish the data and analysis the Federal Reserve stated it 20 provided OCC regarding CRA regulatory revisions. 21 67. OCC acknowledged that Otting personally had calls with the CEOs of 17 large 22 banks, including the CEOs of Chase, Citi, Bank of America, and Wells Fargo, to solicit feedback 23 regarding the rule, but failed to produce any substantive description of the content of these 24 discussions. Only on the final day of the comment period, after the calls were disclosed in news 25 reports and Plaintiffs requested that OCC submit these materials to the rulemaking record, did 26 27 26 See Statement by FDIC Chairman Jelena McWilliams on the CRA Joint Proposed Rulemaking 28 (May 20, 2020), https://www.fdic.gov/news/news/speeches/spmay2020.html (“FDIC Statement”).

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1 OCC publish perfunctory call logs acknowledging that they occurred without providing any 2 detail.27 3 68. OCC also refused to publish the information obtained following a Request for 4 Information on CRA qualifying activities, including retail deposits and loans, even though the 5 stated purpose of the Request for Information was to collect data for use in preparing the Final 6 Rule.28 7 69. OCC’s refusal to publish the data and analysis it collected regarding the Proposed 8 Rule left stakeholders, including Plaintiffs, unable to fully and meaningfully evaluate its various 9 provisions and how all of the provisions would work together.

10 F. Otting’s Refusal to Change Course Despite COVID-19 or Even Acknowledge the Changed Economic Landscape 11 12 70. By the time the Proposed Rule’s comment period closed on April 8, 2020, the 13 United States was in the midst of an unprecedented social and economic lockdown as a result of 14 the global COVID-19 pandemic. In April 2020 alone, 20.5 million jobs were lost and the 15 unemployment rate soared to 14.7 percent. The data also showed that LMI communities—those 16 which depend on the CRA for economic investment—were especially hard-hit economically. 17 71. Recognizing that the global pandemic had completely changed the economic 18 landscape for those communities the CRA is designed to serve, many stakeholders, including 19 Congress, industry trade associations, and Plaintiffs, urged OCC to suspend the rulemaking until 29 20 additional data could be gathered regarding the economic impact of the global pandemic. 21 72. Plaintiffs, among others, also requested additional time to comment, noting that 22 their ability to fully evaluate the rule had been compromised by the disruption caused by the 23 27 24 See OCC, “Summaries of Comptroller Calls with Bank CEOs” (Apr. 8, 2020), available at: https://www.regulations.gov/document?D=OCC-2018-0008-2668. 25 28 See 85 Fed. Reg. 1,285 (Jan. 10, 2020) (request for information); Final Rule, 85 Fed. Reg. at 26 34,786 (OCC’s refusal to publish responses to request for information). 29 See Letter from NCRC (Mar. 24, 2020) https://ncrc.org/wp-content/uploads/2020/03/COVID- 27 extension-request.pdf; Letter from CRC (Mar. 2020), http://calreinvest.org/wp- 28 content/uploads/2020/03/CA-orgs-urge-OCC-and-FDIC-to-end-CRA-rule-making.pdf.

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1 pandemic.30 2 73. Consistent with these concerns, in explaining why her agency declined to proceed 3 with the Final Rule, FDIC Chair Jelena McWilliams indicated that moving forward would distract 4 banks and small businesses from responding to the financial devastation caused by the global 5 pandemic.31 6 74. Otting, however, rejected these requests to suspend the rulemaking, extend the 7 comment period, or gather additional data on the effects of the pandemic and the ensuing 8 lockdown to determine whether they had any implications for CRA implementation. Indeed, the 9 Final Rule contains only four passing references to COVID-19 and no analysis whatsoever of the

10 pandemic’s effect on the needs of LMI communities. 11 75. The impropriety of failing to consider COVID-19’s impact is underscored by 12 OCC’s participation in a joint interagency statement on COVID-19 that promoted activities 13 responsive to the current pandemic such as waiving fees, easing check cashing requirements, and 14 offering payment accommodations. As explained below, the Final Rule creates disincentives for 15 such activities by rewarding banks more highly for other projects with more attenuated benefits to 16 LMI communities.32

17 G. OCC’s Flawed Final Rule 18 76. The Final Rule was posted to OCC’s website on May 20, 2020 and published in the 19 Federal Register on June 5, 2020. See 85 Fed. Reg. 34,734 (June 5, 2020) (Ex. A). OCC dismissed 20 the vast majority of comments out of hand and implemented Otting’s “very strong viewpoints” 21 instead. 22 77. OCC acknowledged that most “commenters disagreed with the approach outlined 23 in the proposal,” but nevertheless stated that “the agency ultimately agreed with the minority of 24

25 30 See id. 31 26 See FDIC Statement, supra note 26. 32 See OCC, FDIC & Federal Reserve, Joint Statement on CRA Consideration for Activities in 27 Response to COVID-19 (Mar. 19, 2020), 28 https://www.federalreserve.gov/supervisionreg/caletters/CA%2020-4%20Attachment.pdf.

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1 commenters who expressed support for the proposed framework.” 85 Fed. Reg. at 34,738. 2 78. Perhaps unsurprisingly given the rushed six-week timeframe in which OCC issued 3 the Final Rule, OCC failed to meaningfully engage with, evaluate, and respond to a substantial 4 number of significant concerns raised by stakeholders, including Plaintiffs. 5 79. Instead, OCC largely adopted the framework that it had proposed from the 6 beginning. That framework made sweeping changes to the CRA’s implementation. As discussed 7 further below, the Final Rule changed what activities count for CRA credit, how they are counted, 8 where they will be counted, and how the public can understand and engage with the CRA process. 9 80. Specifically, the Final Rule revised many of the core components of the CRA

10 process: 11 a. Defining CRA-Qualifying Activities: The Final Rule expanded the range of 12 activities for which banks could receive CRA credit, allowing them to obtain credit 13 for infrastructure projects and similar activities whose benefits to LMI communities 14 are attenuated and speculative at best, for providing financial education to upper- 15 income individuals, for financing large corporate farms, and for financing housing 16 that may be occupied by upper-income individuals. It also created a new definition 17 of “CRA deserts” where banks can receive credit—and even, via a large multiplier, 18 extra credit—in areas where it may be especially beneficial for them to make 19 investments, even if the areas are not truly underserved. 20 b. Defining Assessment Areas: The Final Rule limited the areas in which OCC would 21 measure banks’ performance, allowing them to exclude areas where they have 22 deposit-taking ATMs, while diminishing the importance of meeting local needs in a 23 variety of other ways. And for banks that take 50 percent of their deposits over the 24 Internet, it allowed them to ignore areas that account for less than 5 percent of the 25 bank’s overall business, even if the bank represents a huge share of the 26 community’s banking, and to get credit for activities undertaken anywhere in the 27 community’s state rather than in the community itself. 28 c. Rating Performance: The Final Rule employs a new rating system in which banks

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1 are graded on a single overall metric, and can receive an “outstanding” rating even 2 if they fail to provide credit in 20 or (for some banks) even 50 percent of the 3 communities in which they do business. It also freed banks of any evaluation of 4 most product lines, limiting mandatory evaluations to just one or two product lines 5 per area. The rule essentially eliminates the services test—previously a critical 6 element of determining whether banks are meeting community needs—and 7 combines major elements of the lending and investment tests into the CRA 8 evaluation measure, thereby reducing scrutiny of those important CRA activities. 9 The Final Rule also added a pass/fail retail lending test that has significantly less

10 weight than the previous retail test, in contravention of the anti-redlining mission of 11 the CRA. 12 d. Public Input: The Final Rule eliminated the requirement that CRA examiners 13 consider public comments on banks’ actual record of serving credit needs, 14 requiring only that they consider public comments on the needs of and 15 opportunities in the assessment area as a whole. It also reduced the frequency with 16 which banks will be examined. 17 81. This Final Rule suffers from the same critical legal defects as the Proposed Rule. 18 These problems include, but are not limited to, the dilution of benefits to LMI communities; the 19 lack of data and analysis supporting the proposed evaluation measures; and the elimination of 20 opportunities for public input and community engagement. The Final Rule also changed the 21 Proposed Rule in detrimental ways, without providing the public an opportunity to comment on 22 those last-minute changes. 23 1. The Final Rule Allows Credit for Activities Whose Benefit to LMI 24 Communities Is Speculative and Negligible 25 82. Despite the CRA’s singular focus on redlined and LMI communities, the Final Rule 26 seeks to allow banks to claim credit for a wide array of activities that have only speculative and 27 negligible effects on these communities, and indeed would funnel money away from LMI 28 communities and people of color—the very neighborhoods the CRA was designed to protect.

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1 Commenters, including Plaintiffs, identified these problems in response to the Proposed Rule, and 2 even proposed alternatives that would not have the same effect while achieving some of OCC’s 3 stated goals. But in nearly every case, OCC rejected the comments without reasonable explanation 4 and without any supporting data or analysis. 5 83. For example, the Final Rule for the first time allows banks to claim CRA credit for 6 “essential community facilities” and “essential infrastructure,” which are defined broadly to 7 include, e.g., telecommunications infrastructure, sewage treatment facilities, industrial parks, and 8 bridges, police stations, and public safety facilities, no matter where they are located or who their 9 primary beneficiaries are. 85 Fed. Reg. at 34,794, 34,796.

10 84. As commenters, including Plaintiffs, noted, this provision will allow banks to claim 11 credit for massive projects that they undoubtedly would have financed anyway; whose benefit to 12 LMI people is questionable and speculative; and that are so costly that they will allow banks to fill 13 up their CRA credits without making real investments in LMI communities as the CRA intended. 14 See, e.g., NCRC Comment at 19; CRC Comment at 10. For example, a bank that helped to finance 15 reconstruction of the eastern span of the San Francisco–Oakland Bay Bridge—a $6.5 billion 16 project—could claim CRA credit for it based on the possibility that LMI people would drive 17 across it, even though it cannot be said that the purpose of the project was to help LMI 18 communities, and quantifying the benefit to members of those communities would be extremely 19 speculative. OCC acknowledged this concern but did not meaningfully address it, nor did it 20 provide any data or analysis to support its approach. See 85 Fed. Reg. at 34,744-45. 21 85. The Final Rule allows banks to claim pro rata credit for such activities even if they 22 have only trivial benefits for LMI individuals, marking a substantial change from the existing 23 rules, which require credit for qualifying activities that “primarily benefit” LMI communities. See 24 85 Fed. Reg. at 34,796 (various references to activities that only “partially . . . serve” LMI 25 individuals). 26 86. As commenters, including Plaintiffs, noted, not requiring that an activity provide a 27 minimum level of benefit to LMI individuals or communities in order to be counted will allow 28 banks to string together a number of large projects with relatively low levels of benefits to LMI

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1 communities to obtain CRA credit, rather than making the sort of direct investments in 2 communities that have traditionally been the bread-and-butter of CRA activity and that have 3 consistently been found to have the greatest impact in combating wealth inequality and lending 4 discrimination. See, e.g., NCRC Comment at 24-25; CRC Comment at 10. OCC dismissed this 5 concern out of hand, saying that, notwithstanding the concerns of “members of Congress, 6 government, community groups, and industry,” banks were “unlikely” to string together large 7 projects with limited benefits to LMI communities. For this conclusion, OCC provided no 8 supporting data or analysis, but instead relied only on “the agency’s judgment.” 85 Fed. Reg. at 9 34,754.

10 87. As another example, banks will now receive credit for all of their financial 11 education efforts, regardless of the intended or actual beneficiary of these services. See 85 Fed. 12 Reg. 34,796. As commenters, including Plaintiffs, noted, this provision will allow banks to receive 13 credit for programs that have absolutely nothing to do with benefiting LMI communities. See, e.g., 14 NCRC Comment at 28-29; CRC Comment at 10. Indeed, financial institutions could conceivably 15 receive CRA credit for providing lucrative financial education services to high net worth clients. 16 This is far afield from the CRA’s statutory purpose and further diverts the CRA’s focus away from 17 its intended beneficiaries. OCC again dismissed this concern out of hand and did not meaningfully 18 address it, nor provide any data or analysis to support its approach. Rather, OCC disputed the 19 fundamental and longstanding understanding that the CRA is intended to benefit LMI 20 communities. See 85 Fed. Reg. at 34,745-46. 21 88. Similarly, the Final Rule allows banks to claim CRA credit for financing affordable 22 housing that does not benefit LMI individuals at all. Specifically, the Final Rule considers as a 23 qualifying activity funding of so-called “naturally occurring affordable housing”—e.g., market- 24 rate housing with rent levels that would be affordable for LMI households—even if the housing is 25 to be occupied by upper-income residents. Even some industry stakeholders had suggested 26 approaches attempting to ensure that LMI households would be the occupants, which were 27 disregarded in the Final Rule. See 85 Fed. Reg. 34,796. In other words, CRA credit will be 28 available even if the housing is occupied by people of substantial means.

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1 89. As commenters, including Plaintiffs, noted, this provision will allow banks to claim 2 credit for funding development that provides no benefit whatsoever to LMI individuals and could 3 actually divert funding for affordable housing away from LMI individuals, in contravention of the 4 text and purpose of the CRA. See, e.g., NCRC Comment at 28; CRC Comment at 10. OCC 5 rejected this concern with a vague reference to the burden on banks of income verification, but did 6 not provide any data or analysis to support that concern or rebut commenters’ concerns. See 85 7 Fed. Reg. at 34,742-43. 8 90. The Final Rule also introduces a completely new concept of “CRA deserts”—a 9 concept that is neither in the Proposed Rule nor a logical outgrowth of it—that increases the

10 opportunities for subjectivity and abuse. Banks will be permitted to request designation of areas as 11 “CRA deserts” and will then be eligible for a “multiplier”—essentially, double credit— for any 12 CRA activities in this area. This process permits banks to identify areas where they wish to receive 13 double credit for CRA activities, without any opportunity for public comment or community 14 engagement, and without any indication in the Final Rule as to when it will and will not apply. See 15 85 Fed. Reg. at 34,794. 16 91. Contrary to the requirements of the Administrative Procedure Act, stakeholders, 17 including Plaintiffs, had no opportunity to evaluate and comment on this proposal, as OCC 18 invented it in the Final Rule. They will be continually denied the opportunity to comment as OCC 19 makes ad hoc decisions about CRA deserts behind closed doors with banks, at banks’ requests. 20 And, in combination with other changes in the Final Rule (such as the provision allowing banks to 21 receive “outstanding” ratings despite ignoring 20 or even 50 percent of their assessment areas, 22 discussed further below), this provision will allow banks to concentrate their CRA activities in 23 only the areas they find most lucrative, ignoring communities where they take residents’ deposits 24 but prefer not to provide services. 25 92. The Final Rule adopts new definitions of “distressed area” and “underserved area” 26 that lacked any supporting data or analysis. Distressed areas are defined as middle-income tracts 27 that exhibit high levels of unemployment and poverty. 85 Fed. Reg. at 34,794. Underserved areas 28 are measured by a scarcity of branches. Id. at 34,795.

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1 93. OCC provided no reasoned justification for these new definitions and designations 2 of targeted areas. Commenters, including Plaintiffs, identified OCC’s failure to support these 3 definitions with any data or analysis showing that areas that qualify under the new definitions 4 actually exhibit low levels of lending or high levels of economic distress. See, e.g., NCRC 5 Comment at 31-32. As they explained, the multipliers applied to activities in underserved areas, 6 distressed areas, and CRA deserts could inflate CRA ratings, particularly if these areas are not 7 truly distressed economically. NCRC proposed an alternative definition based on lending rates per 8 capita that would not have this consequence. OCC did not meaningfully respond to this concern 9 and did not provide any data or analysis to support its approach. See id.

10 94. The OCC designations of underserved, distressed, and CRA deserts could also 11 encourage banks to neglect needs in their assessment areas and local communities because the 12 Final Rule allows activities in any of these areas across the country to count toward the bank’s 13 CRA lending and investment dollars. 14 95. The Final Rule also grants banks “multipliers”—effectively, two to four times the 15 normal amount of credit—for various activities. See 85 Fed. Reg. 34,798. In addition to the 16 multiplier for CRA deserts, described above, the Final Rule provides a multiplier based on OCC’s 17 own “determination of the activity’s responsiveness, innovativeness, or complexity,” terms OCC 18 does not even attempt to define or explain how it will implement. Commenters, including 19 Plaintiffs, explained that this list of multipliers was arbitrary and would have the effect of reducing 20 overall CRA activities and funneling CRA dollars away from some of the most consequential 21 activity. See, e.g., NCRC Comment at 40. Although it made some relatively minor revisions, OCC 22 did not meaningfully respond to these concerns, nor did it provide any data or analysis supporting 23 its approach. 24 96. OCC also dramatically increased the threshold for a qualifying “small loan” and for 25 the revenues of a qualifying small business or farm from $1 million to $1.6 million. 85 Fed. Reg. 26 34,794, 34,795. Rather than considering the current needs and opportunities in the small business 27 lending marketplace in evaluating whether to make this dramatic change, as Plaintiffs urged, OCC 28 made the change based only on rote application of an inflation multiplier. In particular,

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1 commenters, including Plaintiffs, identified the particular need for additional lending of less than 2 $1 million to ensure that the smallest businesses can obtain capital for startup and growth. See, 3 e.g., NCRC Comment at 54; CRC Comment at 11-12. Although it reduced its proposed threshold 4 from $2 million to $1.6 million, OCC did not provide any data or analysis regarding the needs of 5 the small business lending marketplace to support its approach. See 85 Fed. Reg. at 34,740-41.

6 2. The Final Rule Allows Banks to Obtain Credit Without Meeting the 7 Need for Services in LMI Communities Where They Do Business

8 97. The Final Rule also alters the way banks draw their assessment areas. Like the 9 changes to what activities count for CRA credit, this revision would radically reorient banks’ CRA 10 activities away from LMI communities and exacerbate the credit shortages in underserved areas 11 that Congress enacted the CRA to address. OCC implemented these changes without supporting 12 data, citing little more than its purported expertise and ignoring detailed comments that identified 13 flaws in the proposal and suggested alternative approaches. 14 98. As discussed above, assessment areas are a central element of CRA 15 implementation. Each regulated bank “must delineate one or more assessment areas within which 16 OCC evaluates the bank’s record of helping to meet the credit needs of its community.” 12 C.F.R. 17 § 25.41(a); accord 85 Fed. Reg. at 34,798 (preserving this definition in proposed 12 C.F.R. 18 § 25.09(a)). Under existing law, wholesale or limited purpose banks must designate all “MSAs or 19 metropolitan divisions … or one or more contiguous political subdivisions, such as counties, 20 cities, or towns, in which the bank has its main office, branches, and deposit-taking ATMs,” while 21 other banks must designate those areas as well as “surrounding geographies in which the bank has 22 originated or purchased a substantial portion of its loans.” 12 C.F.R. § 25.41(b)-(c). An assessment 23 area may not “extend[] substantially across the boundaries of an MSA unless the MSA is in a 24 combined statistical area,” nor may an institution “delineate a whole state as its assessment area 25 unless the entire state is contained within an MSA.” 75 Fed. Reg. at 11,667. 26 99. Under the auspices of amending the implementing regulations to account for non- 27 traditional banks that collect deposits over the Internet, OCC revised this existing, facility-based

28 method for delineating assessment areas and created a new test for deposits collected outside of

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1 branches. Neither change was grounded in data or reasoned analysis, nor did OCC provide a 2 reasoned response to comments opposing the changes or suggesting alternative approaches. 3 100. First, as to the existing facility-based assessment areas, OCC removed the 4 requirement that banks delineate assessment areas around deposit-taking ATMs. See 85 Fed. Reg. 5 at 34,756. This runs directly counter to the CRA, which expressly requires OCC to evaluate “each 6 metropolitan area in which a regulated depository institution maintains one more domestic branch 7 offices,” 12 U.S.C. § 2906(b)(1)(B), which Congress specifically defined to include any “facility 8 … that accepts deposits,” id. § 2906(e)(1). 9 101. This was a major departure not only from the CRA and existing law but from the

10 Proposed Rule, which explicitly said that “banks would continue to be required to delineate 11 assessment areas around their … non-branch deposit-taking facilities.” 85 Fed. Reg. at 1,236; 12 accord id. at 1,244. OCC did not suggest anywhere that it might relieve banks of their requirement 13 to delineate assessment areas around deposit-taking ATMs, so Plaintiffs and other interested 14 parties had no opportunity to comment on that possibility. 15 102. Moreover, OCC’s two-sentence explanation provided no reasoned explanation for 16 the change. OCC relied on the evidence-free supposition that “[i]f a deposit-taking ATM is the 17 only means by which the bank is drawing deposits, it is likely to be a very minor amount of retail 18 domestic deposits” and that including deposit-taking ATMs “would make the assessment area 19 delineation costly.” 85 Fed. Reg. at 34,756. OCC provided no data to back up these claims, despite 20 having required banks to base assessment areas on deposit-taking ATMs for the past 25 years. 21 103. Second, OCC introduced deposit-based assessment areas to adjust to “the 22 emergence of Internet banks and other banks whose business models generate deposits from areas 23 not tied to their physical location.” 85 Fed. Reg. at 34,757. In general, commenters agreed with the 24 concept of updating the CRA’s implementing regulations to account for such banks—but the 25 specific means that OCC chose were unsupported by its evidence, ignored comments and reasoned 26 proposed alternatives, made changes that were not a logical outgrowth of the Proposed Rule, and 27 failed to fulfill what OCC acknowledged as “the CRA’s purpose[:] to ensure that banks help meet 28 credit needs where they collect deposits.” Id.

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1 104. OCC’s Proposed Rule “would have required that banks that received more than 50 2 percent of their retail domestic deposits from outside of their facility-based assessment areas (50 3 percent threshold) delineate separate deposit-based assessment areas in the smallest geographic 4 area from which they received five percent or more of their retail domestic deposits (five percent 5 threshold).” Id. The Final Rule largely adopted this proposal, with one significant change: rather 6 than requiring that banks delineate assessment areas in “the smallest geographic area” in which 7 they met the five percent threshold, OCC allowed them to delineate their assessment areas “at any 8 geographical level up to the state level.” Id. 9 105. As commenters explained, the approach outlined in the Proposed Rule is deeply

10 flawed and entirely unsupported by any evidence. Despite ostensibly “considering a range” of 11 possibilities around both the 50 percent and five percent thresholds, and specifically soliciting 12 comments on whether those thresholds “strike the right balance between allowing flexibility and 13 ensuring that banks serve their communities,” 85 Fed. Reg. at 1,216-17, OCC did not even attempt 14 to explain why they were better than the proposals that Plaintiffs and others submitted—some of 15 which were accompanied by supporting data, unlike OCC’s choices. 16 106. For example, NCRC showed that the five percent threshold would relieve large 17 banks of CRA obligations even in areas where they received a substantial portion of deposits. As 18 NCRC demonstrated, large banks could take in 10 percent or more of deposits in small cities 19 without incurring an obligation to delineate assessment areas in those cities, because the small 20 cities amount to less than five percent of the banks’ deposits despite the banks’ sizable market 21 share in those communities. This flouts the CRA’s goal of ensuring that banks serve the 22 communities whose money they take—yet OCC did not even respond to such comments. Nor did 23 it respond to alternative proposals, such as NCRC’s suggestion to base assessment areas on banks’ 24 market share in an area. Instead, OCC dismissed those suggestions as “based on [commenters’] 25 favored policy outcomes,” 85 Fed. Reg. at 34,757—a criticism it tellingly did not level against the 26 industry commenters whose suggestions it often embraced. 27 107. Indeed, the one way in which OCC did alter its assessment areas proposal from the 28 Proposed Rule was based solely on the concerns of banks that desired “additional flexibility.” Id.

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1 As noted above, OCC opted not to require delineation of assessment areas at the “smallest 2 geographic area from which they received five percent or more of their retail domestic deposits,” 3 as proposed, instead allowing delineation “at any geographical level up to the state level.” Id. In 4 other words, under the Final Rule, if a bank collects five percent of its deposits from, say, Fresno 5 County, it may delineate an assessment area that covers all of California and satisfy its CRA 6 obligations with lending in, say, Los Angeles, without lending a dime in Fresno County. OCC did 7 not even attempt to show how this unannounced change could fulfill the CRA’s goals of ensuring 8 that a financial institution “meet[] the credit needs of its entire community,” 12 U.S.C. 9 § 2903(a)(1), nor did it address the obvious concern that banks might take deposits from

10 underserved areas and then claim credit for lending in only the easiest, most lucrative markets. 11 And, because OCC did not include this approach in the Proposed Rule, commenters were denied 12 the opportunity to weigh in on the sudden reversal. Finally, it is hard to evaluate these provisions 13 when even OCC is unsure how many financial institutions would be impacted by this rule change. 14 When asked about this, Otting indicated he did not know, but perhaps it was 10 to 15 banks that 15 would be impacted by this seemingly consequential provision.33 16 108. These are only some of the many comments, concerns, and proposals that OCC 17 ignored on its way to its preordained conclusion. For example, commenters, including Plaintiffs, 18 suggested that all banks should be required to delineate deposit-based assessment areas, instead of 19 just banks that took 50 percent or more of their deposits outside their facility-based assessment 20 areas; that the changes to the definition of assessment areas would encourage banks to chase large- 21 dollar depositors; that the changes would encourage banks to focus CRA activities in already well- 22 served areas; that OCC should use lending data to establish additional assessment areas; that OCC 23 should collect data on community development activities outside assessment areas; and that OCC 24 should identify specific underserved counties where banks could get credit for community 25 development activities. See, e.g., NCRC Comment at 45-52; CRC Comment at 12-14. To these 26 33 Brendan Pedersen, American Banker, “CRA Cheat Sheet: New Regime Would Look Very 27 Different” (Dec. 12, 2019), https://www.americanbanker.com/news/cra-cheat-sheet-new-regime- 28 would-look-very-different.

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1 and numerous other substantial comments, OCC had little or no response—much less a reasoned 2 explanation for its choices. 3 3. The Final Rule Abandons the Needs of Local Communities for a One- 4 Size-Fits-All Formula 5 109. The Final Rule replaces the traditional CRA focus on the needs of the local 6 communities served by large banks with a presumptive, quantitative general performance standard 7 dominated by activity ratios and minimums. OCC claims that its approach is a “primarily 8 objective” CRA evaluation where “the same facts and circumstances will be evaluated in a similar 9 manner regardless of the particular region” and thus regardless of different circumstances in

10 different places. 85 Fed. Reg. at 34,735. Instead, it has created a system that fails to measure 11 actual benefits to LMI communities and that even fails on OCC’s own terms, because it introduces 12 an opaque, under-specified system that incorporates significant subjectivity. This new framework, 13 which centers on a dominant ratio-based metric and pass/fail tests, rewards high-dollar lending and 14 investments of minimal benefit to LMI communities over actually addressing community needs 15 and providing opportunities for public input. 16 110. Even on OCC’s own terms, the Final Rule fails to achieve OCC’s ostensible goal of 17 making evaluations more objective and quantitative. Rather than establish the precise thresholds 18 that are necessary for the Final Rule’s performance standard, OCC left these critical requirements 19 to a future rulemaking. This represents a tacit—and at times express—recognition that, after 20 significant effort to collect the data necessary to support its approach, OCC lacks sufficient data to 21 support the framework of the Final Rule. 22 111. OCC also shunted significant CRA elements to the “performance context” element 23 of evaluations, preserving and even increasing the opacity and subjectivity that supposedly 24 motivated its changes. Despite justifying the Final Rule as a means of drastically reducing 25 subjective considerations in CRA implementation, OCC put myriad key factors into the subjective 26 performance context framework, where they will be exempt from objective measurement and 27 largely sheltered from public scrutiny. At the same time, OCC removed the ability of the public to 28 comment on bank performance in the performance context altogether.

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1 112. At the center of the Final Rule is a new general performance standard that will 2 replace the large bank performance standard. The application of the new general performance 3 standard results in a “presumptive rating” at the bank and assessment area levels, 85 Fed. Reg. at 4 34,801, which examiners can then adjust under the guise of performance context that includes 5 qualitative considerations and community needs. Id. at 34,802. 6 113. The general performance standard for large banks34 has three components: the retail 7 lending distribution test, CRA evaluation measure, and community development minimum. First, 8 the retail lending distribution test is itself composed of a geographic distribution test and a 9 borrower distribution test. The geographic distribution test measures the bank’s pattern of lending

10 to borrowers in LMI areas, while the borrower distribution test assesses the distribution of retail 11 loans to LMI borrowers, small businesses, or small farms. 85 Fed. Reg. at 34,766, 34,800. The 12 bank’s lending will be measured against either opportunities created by local demographics (the 13 demographic comparator) or peer-bank activity (the peer comparator). Each comparator would be 14 accompanied by a numerical target set by OCC to measure the distribution of retail lending to 15 LMI areas and borrowers of an assessment area. The bank would need to pass only one of the 16 comparators on a pass/fail basis. If the bank exceeds the threshold, it passes; if not, it fails. Id. The 17 retail lending distribution test would apply only to a bank’s “major” retail lending product lines, 18 defined as no more than two product lines that each compose at least 15 percent of the bank’s 19 overall dollar volume of retail loan origination, where the bank originates more than 20 of 20 products within the major retail lending product lines per year in an assessment area under 21 evaluation. 85 Fed. Reg. at 34,766, 34,794-95, 34,800. 22 114. As explained by commenters, including Plaintiffs, the retail lending distribution 23 test fails to account for local community credit needs. See, e.g., NCRC Comment at 60-63; CRC 24 Comment at 23. For example, a bank may be a major lender for a product line in a small, rural, or 25 underserved community even if the product line is not a major line for the bank. Especially for 26 34 The Final Rule replaces the term “intermediate small,” used in current CRA regulations, with 27 “intermediate.” While the standards for other types of banks are generally left the same, the Final 28 Rule increases the asset thresholds that define small and intermediate banks, as discussed infra.

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1 large banks, a 15 percent threshold would exclude a large volume of lending dollars from 2 evaluation. OCC did not provide any data or analysis to respond to these concerns or justify the 3 threshold for a major retail product line. See 85 Fed. Reg. at 34,766. 4 115. In addition, the Final Rule added a new provision absent from the Proposed Rule, 5 freeing banks from examination on all but one or two retail lending product lines for each bank, 6 even though additional product lines may be important for a locality. See 85 Fed. Reg. at 34,766. 7 This new provision did not represent a logical outgrowth of the Proposed Rule or the comment 8 period, and commenters were given no opportunity to evaluate and comment on the new 9 provision.

10 116. Further, by allowing banks to use either a peer or demographic comparator and 11 making the test pass/fail rather than using the tiered CRA ratings (outstanding, satisfactory, etc.), 12 the Final Rule could in fact decrease CRA lending. For example, a bank could lend more than its 13 peers, thus passing the peer comparator, while lending little overall to LMI borrowers, failing the 14 demographic comparator. Under the Final Rule, the bank could still pass the retail lending 15 distribution test—a determination that would depend on the rating thresholds, an essential element 16 of consideration of the Final Rule that OCC left entirely unresolved. OCC did not meaningfully 17 address this concern, nor did it provide any data or analysis to support its approach. 18 117. Second, OCC created a single ratio as the evaluation measure to determine CRA 19 compliance, which will be calculated both for individual assessment areas and at the bank-level. 20 The evaluation measure is calculated by the sum of two figures: (1) the dollar amount of 21 qualifying activities divided by average quarterly retail domestic deposits and (2) the number of 22 bank branches in or serving LMI, distressed, underserved, or native/tribal areas divided by the 23 total number of bank branches and multiplied by .02. 85 Fed. Reg. at 34,768, 34,799-800. 24 + .02 25 26 OCC capped the weight of branch distribution in this formula, limiting the second figure to no 27 more than .01 even for banks with excellent branch distribution. 85 Fed. Reg. at 34,799-800. OCC 28 would compare the sum of this evaluation measure against numeric benchmarks that correspond to

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1 tiered ratings (outstanding, satisfactory, etc.). To receive an outstanding or satisfactory rating at 2 the bank-wide level, a bank with more than five assessment areas would need to receive the 3 corresponding rating in 80 percent of assessment areas and in assessment areas where the bank 4 receives at least 80 percent of retail domestic deposits. For a bank with fewer than five assessment 5 areas, a bank would need to receive the corresponding rating in 50 percent of assessment areas and 6 in assessment areas where the bank receives at least 80 percent of retail domestic deposits. 85 Fed. 7 Reg. at 34,801. OCC provides no data or information to show how many banks have fewer than 8 five assessment areas. See, e.g., id. at 34,772. 9 118. Commenters, including Plaintiffs, noted that the evaluation measure is inconsistent

10 with the community focus of the CRA because it would turn evaluations into a primarily 11 mathematical activity-to-deposits ratio-driven exercise that prioritizes the dollar value of CRA 12 activity over community needs that might call for smaller or better targeted investments. See, e.g., 13 NCRC Comment at 52-60; CRC Comment at 21-25. The CRA imposes an “affirmative obligation 14 [on banks] to help meet the credit needs of the local communities in which they are chartered.” 12 15 U.S.C. § 2901(a)(3), (b). 16 119. A ratio-based activity-to-deposit framework was explicitly considered and rejected 17 by Congress when it passed the CRA. See NCRC Comment at 13-14. Congressional witnesses 18 were concerned that a ratio would require banks to issue loans where there was no demand or 19 where the needs of the community required something different, just to meet a target ratio. Id. 20 120. Similar concerns were echoed by commenters during the rulemaking. For example, 21 prioritizing the total dollar value of activity in the CRA evaluation measure would drive banks to 22 prioritize larger loans rather than the small-dollar home or small business loans necessary in many 23 communities. See, e.g., NCRC Comment at 55-57. This effect will be exacerbated by other 24 provisions of the Final Rule that, taken together, will compound the harm to the small businesses 25 that Plaintiffs and their members support. OCC dismissed these concerns out of hand, simply 26 stating that it “disagrees” without providing any data or analysis to support its approach. See 85 27 Fed. Reg. at 34,770. 28 121. Further, the branch distribution calculation, which cannot add more than 1

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1 percentage point to a bank’s evaluation measure, drastically reduces the importance of local 2 branches relative to the pre-existing service test, which accounts for 25 percent of a bank’s overall 3 CRA score. Compounding the issue, banks may now count branches outside of but “adjacent” to 4 LMI areas. 85 Fed. Reg. at 34,771. This could lead to significant losses of branches in underserved 5 areas, as banks can receive CRA credit for more profitable branches in wealthier neighborhoods or 6 suburbs. OCC did not provide any data or analysis to support its conclusory contention that the 7 bank distribution calculation would not reduce the presence and importance of local branches in 8 underserved areas. This is especially important amidst reports that banks will use COVID-19 and 9 shelter-in-place orders as justifications to close branches.35 They can now do so without the same

10 level of scrutiny from OCC. 11 122. The Final Rule also allows banks to obtain a “satisfactory” or even “outstanding” 12 rating based on only a fraction of its evaluated assessment areas—80 or 50 percent, depending on 13 the footprint of a bank—while failing in the rest. 85 Fed. Reg. at 34,801. In other words, banks 14 could fail to meet their obligations in 20 or even 50 percent of the areas where they take residents’ 15 money, but still receive an “outstanding” rating from OCC. This runs contrary to the CRA, which 16 requires OCC to assess a bank on its record of meeting the credit needs of its “entire community.” 17 12 U.S.C. § 2903(a)(1). OCC would allow a bank to neglect its performance on the evaluation 18 measure in whichever assessment areas it deemed least financially appealing. When passing the 19 CRA, Congress considered and rejected text that would have assessed banks based on where they 20 have a majority of customers.36 Commenters similarly suggested that OCC adopt a tiered approach 21 that mirrored the traditional CRA ratings and rewarded incremental improvements by a bank. See, 22 e.g., NCRC Comment at 67-68. OCC did not meaningfully address this concern, nor provide any 23 data to support how it arrived at the 80 and 50 percent figures. It said the numbers were based on 24 35 See Orla McCaffrey, Wall Street Journal, “People Aren’t Visiting Branches. Banks Are 25 Wondering How Many They Actually Need.” (June 7, 2020), 26 https://www.wsj.com/articles/people-arent-visiting-branches-banks-are-wondering-how-many- they-actually-need-11591531200. 27 36 See Hearings Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate 95-1 28 (Mar. 1977) at 6-7.

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1 “its supervisory judgment and experience” and that it “conducted data analysis,” with little further 2 elaboration. 85 Fed. Reg. at 34,772. 3 123. Third, for a bank to receive an outstanding or satisfactory rating, a bank would 4 need to meet a minimum dollar value of community development loans relative to its retail 5 domestic deposits. 85 Fed. Reg. at 34,772. Commenters, including Plaintiffs, noted that setting a 6 minimum threshold for community development lending may encourage financial institutions to 7 do no more than that minimum. The Proposed Rule would have established a 2 percent minimum, 8 which commenters explained would be insufficient to increase CRA activity and could even lead 9 to a decrease, as some lenders already meet or exceed that level. Id. (describing proposal and

10 criticism). To avoid this criticism, OCC punted, leaving the minimum threshold—a critical metric 11 without which the Final Rule cannot be implemented—for future rulemaking, without providing 12 any data or analysis to explain how it will reach an appropriate threshold or prevent the problems 13 identified by commenters. Id. at 34,773. 14 124. Although the general performance standard depends on numerical benchmarks, 15 thresholds, and minimums to assess bank performance for the retail lending distribution test, 16 evaluation measure, and community development minimum, OCC did not finalize precise figures 17 based on its recognition that it lacked the data necessary to do so. The Proposed Rule contained 18 proposed targets, for example, a 55 percent demographic comparator for the retail lending 19 distribution test, an 11 percent threshold for outstanding performance on the evaluation measure, 20 and a 2 percent community development minimum. 85 Fed. Reg. at 1,218-19. But here again, the 21 Final Rule omits them because “the agency agrees [with commenters] that the existing data [used 22 to set the targets] was limited, rendering the agencies’ and commenters’ choice of thresholds 23 uncertain.” 85 Fed. Reg. at 34,774. Despite this admitted defect, OCC “concluded it is appropriate 24 to finalize each component of the objective evaluation framework contained in the proposal (with 25 revisions as described above) and to separately gather more data and conduct further analysis to 26 calibrate the benchmarks, thresholds, and minimums associated with each of the three components 27 of the framework.“ Id. 28 125. OCC already tried to collect and use the available data during the rulemaking—

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1 from data and comments submitted during the rulemaking, CRA performance evaluations, call 2 reports, Federal Financial Institutions Examination Council data, Home Mortgage Disclosure Act 3 data, credit bureau data, and a separate Request for Information—but came up short. 85 Fed. Reg. 4 at 34,773; OCC, Request for Information, Community Reinvestment Act Regulations, 85 Fed. 5 Reg. 1,285 (Jan. 10, 2020). Without the precise benchmarks, thresholds, and minimums, 6 stakeholders are left in the dark as to how the Final Rule will operate in practice. OCC’s decision 7 to adopt the framework despite its admitted inability to identify the specific numerical 8 benchmarks, thresholds, and minimums needed to operationalize it is arbitrary and capricious, 9 because without these numbers, neither the agency nor the public can fully understand the

10 potential implications and unintended consequences of the Final Rule. 11 126. The Final Rule simultaneously sweeps more banks in under the definitions of 12 “small bank” and “intermediate bank” by raising the asset thresholds required to qualify, and then 13 allows them to “opt in” to whichever regulatory regime they prefer. See 85 Fed. Reg. at 34,794, As 14 commenters, including Plaintiffs, noted, this “opt-in/opt-out” approach will allow banks to choose 15 the framework most beneficial to them—not the one most beneficial to the communities they 16 serve. See, e.g., NCRC Comment at 68-69. OCC did not meaningfully address these concerns, 17 instead saying that it preferred to let banks “choose the performance standards that best fit their 18 needs and objectives.” 85 Fed. Reg. at 34,790. 19 127. The Final Rule also incorporates consideration of performance context, including 20 the consideration of community needs and demographics, business strategy, or economic 21 conditions, in assigning ratings, but makes these important factors secondary to the presumptive 22 rating derived from the general performance standard and wields performance context as a catch- 23 all to try to fix the adverse effects of the numerical performance standard. As before, performance 24 context could include a range of factors, from community needs to bank business strategy to 25 “[a]ny other information deemed relevant by the OCC.” 85 Fed. Reg. at 34,803. 26 128. Commenters, including Plaintiffs, noted that the new way OCC uses performance 27 context would diminish the importance of public input, qualitative factors, and community needs. 28 See, e.g., NCRC Comment at 58-59. OCC has been emphatic that its goal in the rulemaking is a

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1 “primarily objective” CRA evaluation where “the same facts and circumstances will be evaluated 2 in a similar manner regardless of the particular region.” 85 Fed. Reg. at 34,735. As a result, the 3 general performance standard results in a presumptive rating based on whether the banks meet or 4 exceed thresholds for the retail lending distribution test, evaluation measure, and community 5 development minimum. Any consideration not accounted for by an activity-to-deposit ratio or 6 minimums in the favored, quantitative performance standard, such as community needs or bank 7 responsiveness, is therefore made less important—and, despite OCC’s ostensible goal, less 8 objective. This is particularly true for factors such as the provision of retail services that 9 previously were expressly considered by measurable performance criteria but are now lumped

10 together as performance context. Unquantified aspects are thus left by the wayside. OCC does not 11 meaningfully address this concern. 12 129. Moreover, throughout the Final Rule, OCC invokes “performance context” as a 13 catch-all to claim examiners will consider factors and problems that the actual framework of the 14 Final Rule ignores. See, e.g., 85 Fed. Reg. at 34,740 (OCC will consider “qualitative aspects of 15 qualifying activities through performance context”), 34,743 (whether affordable housing complies 16 with local laws), 34,745 (benefits of essential infrastructure projects), 34,751 (“whether the bank 17 is being responsive to community needs”), Id. (retail banking services and delivery systems), 18 34,755 (impact of activities to LMI communities), 34,760 (assessment area delineations), 34,765 19 (performance context may bump a failing grade to a passing grade on retail lending distribution 20 test), 34,768 (financial condition, loan product demand, or “relevant demographic conditions”), 21 34,770 (“unique constraints”), 34,774 (“various external factors affecting a bank or all banks’ 22 ability to meet their CRA evaluation measures”), 34,776 (community engagement), id. 23 (discriminatory or illegal credit practices). 24 130. There is no question what OCC seeks to accomplish through its incantations of 25 “performance context”: it hopes to sweep under the rug the core CRA elements that its 26 quantitative test fails to address, while reserving for itself discretion as to whether, or how, to 27 consider those issues in individual circumstances. These efforts do not cure the Final Rule’s fatal 28 failure to address these important issues. Rather than fixing these problems, OCC’s vague and

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1 unelaborated reliance on “performance context” undermines its stated purpose for the Final Rule, 2 making the rule inconsistent with increasing the “objectivity” of CRA evaluations. See, e.g., id. at 3 34,737.

4 4. The Final Rule Reduces Public Input and Transparency 5 131. The Final Rule limits public input into CRA examinations and makes them 6 considerably less transparent—despite OCC’s professed desire to make CRA implementation 7 “more … transparent.” 85 Fed. Reg. at 34,734. Here again, OCC ignored substantial comments 8 and alternative proposals in favor of adopting without reasoned explanation an approach that 9 undermines the CRA’s purposes.

10 132. Under current law, OCC is required to consider “any written comments about the 11 bank’s CRA performance submitted to the bank or the OCC” when assessing a bank’s CRA 12 performance. 12 C.F.R. § 2906(c)(6). The Final Rule abandons this commitment, instead stating 13 only that OCC will consider “[a]ny written comments about assessment area needs and 14 opportunities submitted to the bank or the OCC.” 85 Fed. Reg. at 34,803; accord id. at 34,776. 15 Thus, CRA examiners will no longer consider public input about the very subject at issue in their 16 examinations: “the institution’s record of meeting the credit needs of its entire community, 17 including low- and moderate-income neighborhoods.” 12 U.S.C. § 2906. 18 133. OCC did not attempt to justify this restriction on public input, or even acknowledge 19 the change it was making. Rather than serving any goal of the CRA, it appears to implement 20 Otting’s preconceived “very strong viewpoint[]” that members of the communities served by 21 banks—the very entities with whom the CRA is concerned—should be stripped of the ability to 22 “use [banks’] lack of compliance” to “affect [OCC’s] decisions.” See supra ¶ 131. 23 134. Similarly, OCC refused to require reporting of data elements necessary to evaluate 24 banks’ performance under its new tests. For example, the Final Rule does not require the reporting 25 of retail domestic deposit data from banks or of the geographic location of deposits, despite 26 acknowledging that the absence of such data makes it hard to set and evaluate policy. 85 Fed. Reg. 27 at 34,780, 34,782. Without public dissemination of this data, the public would have no way of 28 knowing where the deposit-based assessment areas of banks would be. Indeed, as OCC

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1 acknowledged, the absence of this data frustrates even OCC’s evaluation. See id. at 34,756 (“The 2 current data limitations make it impossible to ascertain the volume of deposits from depositors’ 3 geographic locations.”). 4 135. The Final Rule also made examinations significantly less frequent for banks that 5 received an “outstanding” rating (a rating that, as discussed above, will now be substantially easier 6 to obtain). Currently, banks are evaluated every two to three years. Under the Final Rule, banks 7 receiving an outstanding rating “would be evaluated every five years.” Id. at 34,783. With little 8 explanation, OCC is cutting examinations in half for many banks, despite Congress’s recognition 9 of banks’ “continuing and affirmative obligation” to comply with the CRA. 12 U.S.C. § 2901.

10 136. OCC ignored or cursorily dismissed numerous other comments expressing 11 concerns about its proposed recordkeeping requirements and suggesting alternative approaches. 12 For example, commenters argued for disseminating CRA data at the level of individual census 13 tracts, just as banks do under the Home Mortgage Disclosure Act (“HMDA”). See NCRC 14 Comment at 71. Not only did OCC fail to even acknowledge this suggestion or explain why it was 15 rejecting it, OCC actually removed HMDA data from banks’ public files. 85 Fed. Reg. at 34,783. 16 OCC similarly deleted its previous requirement that banks’ small business and farm data be 17 publicly disseminated at a county level and for income categories of census tracts. OCC further 18 opted against the public reporting of the new community development lending and investment 19 data at the county or census tract level that is to be submitted by banks to OCC, despite requests 20 from commenters, including Plaintiffs. 85 Fed. Reg. at 34,781; see NCRC Comment at 71.

21 H. Harm to NCRC 22 137. Although NCRC has been supportive of policies that would strengthen and 23 modernize the CRA, OCC’s Final Rule achieves the opposite, and will frustrate NCRC’s mission 24 in several respects. The Final Rule will impair NCRC’s ability to prepare evidence-based reports 25 on banks’ CRA-qualifying activities in specific communities; impair its negotiations of 26 agreements to increase CRA investment in LMI communities; impede its members’ efforts to 27 secure investments in the LMI communities they serve; decrease banks’ incentives to lend to 28 clients in NCRC’s housing counseling and small business lending programs; put NCRC and its

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1 members in competition with large-scale infrastructure projects and similar financing 2 opportunities; and impede NCRC’s ability to advocate on behalf of its members and LMI 3 communities throughout the CRA evaluation process. 4 138. NCRC devotes substantial resources to negotiating agreements with lenders to 5 support the credit needs of LMI communities and communities of color. NCRC negotiates these 6 agreements in tandem with member organizations that have a presence in the areas where the bank 7 is located. NCRC also steps in to help negotiate agreements in pockets of the country where there 8 are few or no organizations working to advance CRA investments in LMI communities. Through 9 these agreements, NCRC obtains bank commitments to provide loans, investments, and bank

10 services in communities that have historically faced barriers to accessing credit and deposit 11 services. 12 139. For example, in 2016, NCRC and numerous member organizations in the Midwest 13 negotiated an agreement with a bank wherein the bank committed to spend $16.1 billion in low- 14 income communities and communities of color over the next five years, including through mortgage 15 and small business lending, community development lending, and opening ten new branches. In 16 2017, the first year of the agreement, the bank increased its mortgage lending to LMI communities 17 and borrowers by over 16%. Overall, since 2016, NCRC’s agreements with banks have helped 18 secure over $158 billion in commitments to invest, lend, and open branches in LMI communities. 19 140. The Final Rule impairs NCRC’s efforts by making it far more difficult for NCRC 20 to identify the communities most in need of CRA-qualifying investments. This increases the 21 difficulty of and resources required for each effort NCRC undertakes, reducing the number of 22 agreements NCRC can pursue; restricting NCRC’s ability to address a specific community’s small 23 business lending needs in such agreements; and preventing NCRC from being able to address 24 these issues adequately in meetings with banks with whom they do not have formal agreements. 25 The Final Rule further impairs the local efforts of NCRC’s members, who depend on the reports 26 that NCRC provides to negotiate their own agreements with banks. OCC regulates the nation’s 27 largest banks so the loss of small business and farm loan data for these banks represents a 28 significant burden and cost.

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1 141. Outside of the new impediments to data-gathering erected by the Final Rule, the 2 Final Rule impairs the ability of NCRC and its members to obtain meaningful investments in the 3 LMI communities they serve. In particular, the new rule makes it easier for banks to pass their 4 CRA exams; creates incentives for banks to choose higher-dollar projects, including those that 5 may only partially benefit LMI communities; and reduces the exam’s focus on bank services. If 6 banks can fulfill CRA obligations through other means that are not focused on LMI communities, 7 those banks can ignore entire LMI communities. NCRC will lose leverage to negotiate 8 commitments for banks to increase their mortgage lending, small business lending, and bank 9 services in LMI communities. The changes will also intensify the competition NCRC and its

10 members face for CRA-qualifying investments, placing their more individualized, smaller-dollar 11 proposals in direct competition with a wide range of infrastructure and similar projects that they 12 do not compete against in the same way under current law. Moreover, when, in the future, NCRC 13 seeks to reach a community benefits agreement with an OCC-chartered bank, NCRC will have to 14 work to reach resolution on a new definition of “community development” that excludes some 15 activities covered by the overbroad definition in the Final Rule. 16 142. As part of its mission, NCRC comments on bank merger applications and bank 17 charter applications, and its evidence-based reports assist its members and the public in doing so. 18 NCRC also submits comments on banks’ CRA performance, based on the data that is available. 19 Under the current CRA framework, regulators must consider these comments when evaluating 20 bank merger applications. 21 143. The Final Rule will impair NCRC’s ability to prepare reports that help NCRC, 22 members and the public make meaningful, informed comments on CRA performance because the 23 CRA data that OCC will provide under the new rule will be less transparent. Further, the public 24 will no longer be able to provide direct input on a bank’s CRA performance, and will instead be 25 limited to commenting about assessment area needs and opportunities. See supra ¶ 140. The Final 26 Rule (in a change from the Proposed Rule) also permits banks themselves to request designation 27 of areas as “CRA deserts.” As a practical matter, this change will make it more difficult for 28 communities to comment on the bank’s performance through the limited means that will remain

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1 available, because NCRC and its members have little visibility and no input into which areas a 2 bank might designate and obtain agency approval for as deserts. 3 144. NCRC operates programs whose missions will directly suffer as a result of the 4 Final Rule’s diversion of lending from small-dollar to large-dollar loans, and away from programs 5 that directly benefit LMI communities. First, through its D.C. Women’s Business Center and 6 Small Business Technical Center, NCRC provides counseling to small business owners on how to 7 secure loans and in some cases directly connects small business owners with lenders. These 8 programs serve small business owners that rely on these loans to launch or grow. The Final Rule 9 will impair these programs by expanding CRA-qualifying activities to include activities that are

10 attenuated from LMI communities, thereby reducing the incentives for banks to make small 11 business loans in communities to achieve passing CRA grades. The general performance standard 12 encourages banks to focus on high-dollar lending, and lending that only partially benefits LMI 13 communities, to the detriment of programs like the D.C. Women’s Business Center and Small 14 Business Technical Center that are specifically focused on securing small business loans for low- 15 income communities and communities of color. As small business loans in LMI communities 16 decrease, these programs and similar ones maintained by NCRC’s members will see their 17 resources increasingly taxed as the number of people who need their services grows. 18 145. Second, NCRC convenes the Housing Counseling Network, which has more than 19 50 members and helps potential homeowners in LMI communities secure non-predatory mortgage 20 loans. These housing counseling organizations often receive grants directly from banks to fund 21 their services. If banks can achieve a passing CRA score through large-dollar infrastructure 22 projects or “essential facilities” that the bank asserts partially benefit LMI communities, a bank 23 can suspend smaller-dollar grants for housing counseling in LMI communities, and may reduce 24 the number of mortgage loans available to LMI homebuyers. 25 146. Finally, OCC’s unilateral decision to sever the previously unified framework for 26 CRA examination will itself impede NCRC’s mission. NCRC devotes significant resources to 27 aggregating, analyzing, and sharing CRA data, and to providing its members guidance on the 28 CRA. The lack of a unified framework means that some banks in an area will be subject to the

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1 current regulations administered by FDIC and the Federal Reserve, while others will be subject to 2 OCC’s Final Rule (unless, as is permitted for certain banks, those banks opt to stick with the 3 current rule). This inconsistency will necessarily multiply the resources NCRC spends to 4 aggregate and compare data across banks, to advise its members on the CRA requirements 5 applicable to banks in members’ service areas, and potentially for NCRC and its members to 6 negotiate agreements with banks. Additionally, NCRC will need to work to prevent “charter- 7 shopping” as banks seek to claim that they fall under OCC’s relaxed CRA regulations rather than 8 their existing FDIC or Fed regulations. 9 147. Moreover, NCRC’s evidence-based reports are a principal way that NCRC

10 achieves its mission and helps its more than 600 member organizations around the country work to 11 increase bank investments in their communities. Currently, NCRC pulls publicly available data on 12 mortgage lending, which is available from the Consumer Financial Protection Bureau (“CFPB”) 13 under the Home Mortgage Disclosure Act; publicly available data on bank branches, which is 14 available from the FDIC; and publicly available data on farm and small business lending, which is 15 available from OCC, FDIC, and the Federal Reserve under the existing CRA regulations. All are 16 available at a census tract level. From the CRA data, a member of the public can determine, for 17 each bank, the number and dollar amount of small business and farm lending for income 18 categories of census tracts. NCRC regularly uses these data sources to prepare reports for 19 members on mortgage lending, business lending, and branch locations in relevant census tracts, 20 comparing data by income and race and visually mapping where a given bank’s loans are going. 21 NCRC also prepares reports on broader issues related to community investment and ways to 22 strengthen the CRA, such as a recent report comparing bank mortgage lending in LMI 23 communities against such lending by non-banks.37 NCRC is one of the few groups offering reports 24 with this data to the public on a national level. 25 26 37 NCRC, “Home Lending to LMI Borrowers and Communities by Banks Compared to Non- 27 Banks,” https://ncrc.org/home-lending-to-lmi-borrowers-and-communities-by-banks-compared-to- 28 non-banks/.

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1 148. NCRC’s members use these evidence-based reports to understand a given bank’s 2 current CRA-qualifying activities in LMI communities, which informs members’ discussions with 3 banks about community credit needs and strengthens members’ ability to negotiate agreements for 4 banks to commit to increasing their CRA investments or lending or institute new programs or 5 products. NCRC members and the public also use the reports to inform comments on banks’ CRA 6 performance. Likewise, NCRC itself uses its reports to inform and strengthen its own negotiations 7 with banks for agreements to increase their CRA-qualifying activities, like small business and 8 mortgage lending, in LMI communities. 9 149. The Final Rule will impair NCRC’s ability to acquire and analyze the data

10 necessary to prepare these reports for its members and the public. In particular, the Final Rule will 11 combine, or aggregate, all small business lending in a county. NCRC will no longer be able to 12 analyze a specific bank’s performance at the county level, let alone for income categories of 13 census tracts as is currently possible. With only aggregate data available, NCRC and its members 14 will lack the information about a specific bank necessary for discussions and negotiations to 15 ensure that the bank is investing in its LMI communities. To understand banks’ farm and small 16 business lending, NCRC will have to spend additional resources to undertake costly surveys or 17 other means to approximate the data that is currently available.

18 I. Harm to CRC 19 150. OCC’s Final Rule will likewise harm CRC, its member organizations, and the 20 communities they serve throughout California. Specifically, the rule will inhibit CRC’s ability to 21 advocate for and obtain greater access to credit for LMI communities; to educate homeowners, 22 tenants, small business owners, lenders, and policymakers about the issues impeding access to 23 credit in LMI communities; to issue evidence-based reports about CRA investments in LMI 24 communities; to work with lenders to encourage investment in low-income communities and 25 communities of color; and to analyze and comment on a bank’s CRA performance. It will also 26 place CRC and its members at a significant disadvantage in seeking to encourage financing for 27 LMI communities, forcing them to compete with high-dollar projects that currently do not qualify 28 for CRA credit.

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1 151. Like NCRC, CRC devotes substantial resources to negotiating agreements wherein 2 banks commit to increasing small business, mortgage lending, bank services, and other CRA funds 3 in LMI communities. Through these agreements, CRC obtains commitments to provide loans, 4 investments, and financial services in communities that have historically faced barriers to 5 accessing such resources. For example, in 2017, CRC, along with NCRC and organizations in 6 other states, secured a commitment from CIT Bank to invest $7.75 billion in CRA-qualifying 7 funds in LMI communities between 2020 and 2023. CIT committed to spend $6.5 billion 8 specifically in California, including for single-family mortgage loans in LMI census tracts and in 9 majority-minority census tracts, and small business lending in the same communities. CRC has

10 secured several other multibillion-dollar commitments from banks since 2015. 11 152. The Final Rule impairs these efforts by making it far harder for CRC to identify the 12 communities most in need and the CRA investments that could be most beneficial. This increases 13 the difficulty of and resources required for each effort CRC undertakes, reducing the number of 14 agreements CRC can pursue; restricts CRC’s ability to address specific community needs in 15 agreements; limits CRC’s ability to work with local policymakers and community leaders 16 regarding bank performance and activities in their neighborhoods; and prevents CRC from being 17 able to address these issues adequately in meetings with banks with whom they do not have formal 18 agreements. 19 153. The Final Rule further impairs these efforts by expanding the activities that qualify 20 for CRA credit and making it easier for banks to achieve passing grades. In particular, the Final 21 Rule creates incentives for banks to pursue high-dollar investments with only a tangential benefit 22 for the communities served by CRC, to the detriment of CRA activities like mortgage and small 23 business lending in LMI communities—the activities that most directly address wealth inequality. 24 Additionally, the expansion of qualifying activities in a ratio-based system will likely harm 25 communities by fueling and exacerbating the financing of displacement of vulnerable residents 26 and small businesses, a pressing problem that CRC has expended its limited resources attempting 27 to address and rectify. For the first time, CRC and its members will need to compete with large- 28 scale infrastructure and similar projects in their efforts to encourage and obtain CRA-qualifying

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1 investments. This, combined with the Final Rule making it easier for banks to receive a passing 2 rating, will reduce CRC’s ability to obtain funding for LMI communities through these 3 agreements. 4 154. A central aspect of CRC’s mission is holding banks accountable to their CRA 5 obligations in the communities that CRC and its members serve. CRC and its members use CRC’s 6 reports and analyses to inform comments on bank merger applications and comments on banks’ 7 CRA performance. Further, CRC and its members use CRC’s analyses to identify local needs in 8 their specific communities and how banks are addressing those needs, and to submit their own 9 comments on bank CRA performance.

10 155. The Final Rule will significantly impair CRC’s efforts to hold banks accountable 11 for fulfilling their CRA obligations. The Final Rule’s anti-transparency measures and failure to 12 continue furnishing small business lending data will limit the usefulness of CRC’s and its 13 members’ comments. While the “OCC agrees that it is important to consider both positive and 14 negative qualitative aspects of a bank’s CRA performance,” 85 Fed. Reg. at 34,776, the Final Rule 15 strikes language about the public’s ability to comment on bank performance, which is the main 16 way in which OCC would hear about negative aspects of a bank’s CRA performance and which 17 directly frustrates CRC’s CRA-related activities. Instead, CRC will be limited to comments on 18 local needs, rather than a bank’s CRA performance. Further, the Final Rule’s use of a presumptive 19 rating based on the total dollar amount of a bank’s CRA activities will undermine any 20 consideration of public comments. Rather than being part of the regulator’s CRA evaluation, 21 CRC’s and its members’ comments must go up against the bank’s presumptive rating and will be 22 limited to addressing community needs rather than the bank’s actual CRA performance. OCC’s 23 Final Rule also further reduces CRC’s opportunities for input by indicating that CRA exams will 24 occur only once every five years for banks that receive Outstanding ratings. 25 156. CRC also provides specific services that will be harmed by OCC’s Final Rule. 26 Specifically, CRC’s immigrant financial security program assists immigrant families with 27 obtaining access to small business loans and banking services, including advocating for banks to 28 expand language access and Individual Tax Identification Number (“ITIN”) lending, activities that

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1 are seemingly devalued by the new rule. 2 157. OCC’s Final Rule will impair CRC’s programs for immigrants in LMI 3 communities by reducing the CRA exam’s focus on the service test. Banks will not specifically 4 receive credit for these services that banks might undertake to aid immigrant communities and, as 5 a result of the performance standard, can fulfill their CRA obligations through other activities that 6 are far attenuated from supporting LMI communities. The Final Rule’s focus on high-dollar 7 lending to larger businesses will also reduce banks’ incentives to provide small business loans to 8 LMI communities, which will adversely affect CRC’s clients and increase their need for CRC’s 9 resource-constrained services.

10 158. The Final Rule will also impair the missions of many of CRC’s members, which 11 are nonprofits and public agencies that provide services to LMI communities and communities of 12 color. Members include organizations focused on housing counseling, access to affordable 13 housing, working with small business lenders, increased access to credit, and community 14 development financial institutions. Many, if not all, have relationships to banks. Many of these 15 member organizations receive direct grants from banks to fulfill their organizational missions to 16 serve the economic development, financial, and credit needs of communities, as part of banks’ 17 CRA activities, and the Final Rule will reduce the incentives for banks to engage in these sorts of 18 CRA-qualifying activities that aid the members’ clients since grants generally are the smallest part 19 of bank CRA activities and will be substantially devalued under the new ratio-based regime in 20 favor of almost any other qualifying activity. 21 159. For example, affordable housing organizations rely heavily on tax credits, 22 including Low-Income Housing Tax Credits (“LIHTC”). LIHTC credits are counted as part of the 23 investment test. However, the Final Rule essentially eliminates a separate investment test and 24 creates incentives for banks to pursue high-dollar lending, including lending that only partially 25 benefits LMI communities. LIHTC credits are complicated and can be expensive for banks to 26 administer. If banks can achieve CRA credit through larger, high-dollar investments or community 27 development loans, banks will pursue fewer tax credits, harming CRC’s members in LMI 28 communities that rely on tax credits for affordable housing. Reduced bank demand for LIHTC

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1 credits will impact pricing in the market and will lead to fewer affordable housing units being 2 built, and such units will likely be less targeted to extremely low-income residents. 3 160. OCC’s unilateral departure from the unified framework for CRA examination will 4 itself impair CRC’s mission. For example, CRC regularly publishes analyses of access to small 5 business, mortgage loans, and other CRA investments in low-income communities and 6 communities of color. The lack of a unified framework means that some banks in an area will be 7 subject to the current regulations administered by FDIC and the Federal Reserve, while others will 8 be subject to OCC’s Final Rule. This disruptive inconsistency across agencies will make it more 9 difficult for CRC to compare data across banks, to advise its members on the CRA requirements

10 applicable to specific banks, and potentially for CRC and its members to negotiate agreements 11 with banks. 12 161. In addition, CRC regularly publishes analyses of access to small business, 13 mortgage loans, and other CRA investments in low-income communities and communities of 14 color. CRC and its members use these reports to identify local credit needs, prepare for meetings 15 with local banks, and develop comments to regulators. CRC will develop these analyses in 16 response to questions from CRC members and local policymakers and community leaders, to 17 address broader issues at an area or state level, or to examine a specific bank’s activities at a 18 census-tract level. As explained above, the Final Rule will prevent public access to bank-level 19 information about small business and farm lending, which will limit CRC’s ability to produce 20 informed analyses and increase the costs of obtaining necessary information.

21 V. CLAIM FOR DECLARATORY AND INJUNCTIVE RELIEF 22 COUNT ONE VIOLATION OF THE ADMINISTRATIVE PROCEDURE ACT, 23 5 U.S.C. §§ 706(2)(A), (C) 24 162. Plaintiffs re-allege and reincorporate the paragraphs above as fully set forth herein. 25 163. The APA requires that a reviewing court “hold unlawful and set aside agency 26 action, findings, and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or 27 otherwise not in accordance with law” or “in excess of statutory jurisdiction, authority, or 28 limitations.” 5 U.S.C. §§ 706(2)(A), (C)

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1 164. The Final Rule should be declared unlawful and set aside as arbitrary, capricious, 2 and/or contrary to law for the reasons described above, and as summarized in part below: 3 165. First, the Final Rule severs the previously unified CRA regulatory framework. The 4 three major bank regulators—FDIC, the Federal Reserve, and OCC—have always moved in 5 lockstep with respect to CRA regulatory revisions. FDIC and the Federal Reserve declined to join 6 OCC’s radical restructuring of the CRA rules, which means that banks will now be subject to 7 different CRA rules depending on whose jurisdiction they fall under, and community groups such 8 as Plaintiffs will experience challenges adjusting their CRA programs because the regulators are 9 no longer moving in lockstep. Yet, even though a vast array of stakeholders, including Plaintiffs,

10 banks, and the other financial regulatory agencies, raised concerns about the confusion and 11 conflict this could cause, OCC provided no response at all in the Final Rule. 12 166. Second, the Final Rule’s general performance standard framework is contrary to the 13 CRA’s “affirmative obligation [on banks] to help meet the credit needs of the local communities 14 in which they are chartered,” 12 U.S.C. § 2901(a)(3), (b), and the requirement that OCC assess a 15 bank on its record of meeting the credit needs of its “entire community.” 12 U.S.C. § 2903(a)(1). 16 Rather than focus on local needs, OCC establishes for the first time a presumptive ratio-based 17 framework that rewards large investments and allows banks to do far less for LMI communities 18 and still get a passing grade, contrary to the statutory command. This interpretation is confirmed 19 by the history of the passage of the CRA, where Congress considered and rejected a ratio-based 20 framework similar to the general performance standard for these very reasons. Further, the ability 21 of banks to receive passing bank-level grades while neglecting a significant portion of their 22 assessment areas, 20 or 50 percent, means that OCC would fail to evaluate performance based on a 23 bank’s record in its entire community. Legislative history again confirms this interpretation. The 24 unprecedented general performance standard is contrary to the text, history, and purpose of the 25 CRA, and to the preceding decades of its implementation by the regulatory agencies. Similarly, 26 the Final Rule unlawfully frees banks from the requirement to designate assessment areas around 27 deposit-taking ATMs, despite Congress’s express requirement that OCC evaluate “each 28

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1 metropolitan area” in which a bank maintains any “facility . . . that accepts deposits.” Id. 2 §§ 2906(b)(1)(B), 2906(e)(1). 3 167. Third, in numerous respects discussed above, the Final Rule is almost entirely 4 unsupported by data or analysis, and fails to account for contrary data and analysis provided by 5 commenters, including Plaintiffs, and even by other federal regulatory agencies. 6 168. Fourth, Otting pushed the Final Rule through the regulatory process—based on his 7 long-held and, by his words, “very strong viewpoints” about weakening the CRA—without 8 meaningfully addressing the near-universal criticism the rule received from stakeholders ranging 9 from community groups to banks to the other financial regulatory agencies. OCC’s failure to

10 meaningfully consider and respond to these comments and the alternative approaches they 11 proposed renders the Final Rule arbitrary and capricious. 12 169. Fifth, the Final Rule sweeps aside the longstanding understanding of the CRA to 13 require banks to focus their efforts on supporting LMI communities, communities of color, and 14 other communities that have historically been subjected to discrimination in the provision of 15 financial services (i.e., redlining). In its public statements, OCC has asserted, without evidence, 16 that the Final Rule will in fact benefit LMI communities. In the Final Rule, OCC alternates 17 between denying without evidence or altogether ignoring comments about the adverse effect it 18 would have on these communities, and asserting, sweepingly and for the first time, that the CRA 19 has no such statutory focus. This unprecedented interpretation is contrary to the text, history, and 20 purpose of the CRA, and to the preceding decades of its implementation by the regulatory 21 agencies. The Final Rule should therefore be set aside because it is contrary to law, and because it 22 is arbitrary and capricious for failing to consider important aspects of the problem, and for its 23 failure to recognize, much less provide good reasons for, its dramatic upending of a decades-long 24 approach to CRA implementation that focuses principally on the needs of LMI communities.38 25 26 27 38 28 See FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009).

Farella Braun + Martel LLP COMPLAINT FOR DECLARATORY AND 235 Montgomery Street, 17th Floor 52 San Francisco, California 94104 INJUNCTIVE RELIEF (415) 954-4400 Case 3:20-cv-04186 Document 1 Filed 06/25/20 Page 55 of 56

1 170. Sixth and finally, in the midst of the rulemaking process, the COVID-19 pandemic 2 took hold, and the ensuing lockdown and economic crisis completely reshaped the financial 3 landscape for communities across America—effects that were exacerbated in LMI communities 4 and communities of color. Stakeholders, including Plaintiffs, implored the regulatory agencies to 5 suspend the rulemaking process and reevaluate the Proposed Rule in light of the seismic shift that 6 had occurred in the American economic landscape. The FDIC agreed. Without sufficient 7 explanation, OCC refused, and pressed forward with the Final Rule.

8 COUNT TWO VIOLATION OF THE ADMINISTRATIVE PROCEDURE ACT, 9 5 U.S.C. §§ 706(2)(A), (C) 10 171. Plaintiffs re-allege and reincorporate the paragraphs above as fully set forth herein. 11 172. The APA provides a remedy to “hold unlawful and set aside agency action, 12 findings, and conclusions found to be . . . without observance of procedure required by law.” 5 13 U.S.C. § 706(2)(D). 14 173. OCC failed to make public a complete rulemaking record of the data, analysis, ex 15 parte communications, and other material that was before the agency as it issued the Proposed 16 Rule and the Final Rule. 17 174. The Final Rule contained significant new substantive provisions that it did not 18 describe in the Proposed Rule, and that did not represent a logical outgrowth of the comments 19 received in response to the Proposed Rule. 20 175. OCC failed to extend the comment period on the Proposed Rule beyond April 8, 21 2020, despite the requests of the public, including Plaintiffs, to do so in order to allow a sufficient 22 period for review in the midst of an unprecedented global pandemic. 23 176. These failures rendered the public, including Plaintiffs, unable to fully evaluate and 24 comment on the Final Rule prior to its issuance.

25 PRAYER FOR RELIEF 26 WHEREFORE, Plaintiffs pray that this Court: 27 (1) Declare that the Final Rule violates the APA and the CRA; 28 (2) Issue an order holding unlawful and setting aside the Final Rule;

Farella Braun + Martel LLP COMPLAINT FOR DECLARATORY AND 235 Montgomery Street, 17th Floor 53 San Francisco, California 94104 INJUNCTIVE RELIEF (415) 954-4400 Case 3:20-cv-04186 Document 1 Filed 06/25/20 Page 56 of 56

1 (4) Award Plaintiffs their attorneys’ fees and costs pursuant to 28 U.S.C. § 2412; and 2 (5) Grant such other and further relief as this Court deems proper. 3 4 Dated: June 25, 2020 FARELLA BRAUN + MARTEL LLP 5 By: 6 /s/ Anthony Schoenberg Anthony Schoenberg 7 8 Sarah A. Good (State Bar No. 148742) [email protected] 9 Anthony Schoenberg (State Bar No. 203714) [email protected] 10 Eric D. Monek Anderson (State Bar No. 320934) [email protected] 11 Farella Braun + Martel LLP 235 Montgomery Street, 17th Floor 12 San Francisco, California 94104 Telephone: (415) 954-4400 13 Facsimile: (415) 954-4480

14 Nitin Shah (DC Bar No. 156035) (pro hac vice application forthcoming) 15 [email protected] 16 Jeffrey B. Dubner (DC Bar No. 1013399) (pro hac vice application forthcoming) 17 [email protected] Sean A. Lev (DC Bar No. 449936) 18 (pro hac vice application forthcoming) Democracy Forward Foundation 19 P.O. Box 34553 20 Washington, DC 20043 Telephone: (202) 448-9090 21 Facsimile: (202) 701-1775

22 Counsel for Plaintiffs 23 24 25 26 27 28

Farella Braun + Martel LLP COMPLAINT FOR DECLARATORY AND 235 Montgomery Street, 17th Floor 54 San Francisco, California 94104 INJUNCTIVE RELIEF (415) 954-4400